The rise and rise of rent-seeking

url-1

Late last week, Ross Gittins delivered the keynote address at the Australian government’s National Conference on Resources and Energy. The speech was an absolute barn burner delivered over dinner and one wonders if it didn’t sour the meal. Titled The Political Outlook for Reform, the address was so honest that it hasn’t made any national media, a nice illustration of the speech’s very point.

Find the address presented in full below. It is not long and superbly summarises the context of your economy at this juncture. Brace positions!

THE POLITICAL ECONOMY OUTLOOK FOR REFORM

Australian National Conference on Resources and Energy

Talk to conference dinner, Canberra, Wednesday, October 3, 2013

Ross Gittins, Economics Editor, The Sydney Morning Herald

I suppose I should start by warning you I’m an adherent to the Paddy McGuinness school of public speaking, which holds that there’s no point in speaking to an audience unless you say something that makes them sit up, challenges their comfortable assumptions and gives them something uncomfortable to think about. This has become, I admit, a terribly unfashionable way to engage an audience. The fragmentation of the media that’s occurring in the digital age is increasingly allowing consumers of the media to customise their news and opinion, selecting those items they’ll find congenial and reinforcing, and selecting out anything that jars with their long-held view of the world. And it’s certainly the case that the main organs of business news have switched to a strategy of only ever telling the captains of industry what they want to hear, of echoing their own opinions back to them.

Sorry, but I’m too close to retirement and too comfortably off to be bothered abasing myself in such a way. In Paddy McGuinness’s heyday the business bible saw its role as being devil’s advocate to business and that’s a role I’m much more comfortable with. And since I didn’t ask to be paid to talk to you tonight, I’m going to do it my way. So I imagine many of you won’t enjoy what I’ve got to say and may even heartily disagree with some of it. Feel free to think of some disparaging label to attach to me and use as an excuse to close your mind to the challenging things I say. I’ll still bother saying them in the hope at least some of you are bosses who don’t want to be surrounded by yes-men and do want to be challenged to rethink some of your more comforting beliefs.

Perhaps among all the labels you could use to dismiss my views the least abusive is that I’m ‘anti-mining’. I assure you I’m not. I’ve spent the past decade singing the praises of the resources boom to my readers, arguing staunchly that this reinforcement of Australia’s comparative advantage in the provision of minerals and energy to the rest of the world is a blessing, and that the rest of our economy has to cop the painful structural adjustment this new stroke of good fortune makes necessary.

What I’m not, however, is pro-mining. I’d like to think I’m not pro any particular sector of industry. When I got into the economic commentary business 40 years ago it was the farmers and the manufacturers who were always trying to tell us they were special, that the rest of the economy rode on their back and that this entitled them to special consideration. It was self-serving self-delusion then, and it still is. What’s changed is that, these days, we also have the miners trying to tell us they’re special, that the rest of the economy rides on their back and that they’re entitled to special consideration. Sorry, not buying that one, either.

With the change of government I’m sure you’re a lot happier about the prospects for the economy and its management, and a lot more confident of a sympathetic hearing from the new government. I wouldn’t be so sure. I suspect the mining industry’s lobbying success is reaching its zenith as we speak. It won’t surprise me if, looking back on the life of the Abbott government, you come to realise the big gains the industry made actually occurred under the Labor government. They occurred no thanks to Labor, and all thanks to the Coalition, but they occurred in reaction to the policies of Labor as part of Tony Abbott’s successful four-year campaign to fight his way back into office.  Why did Abbott immediately oppose the mining tax and promise to repeal it? Because he genuinely believed it would wreck the mining industry and do great damage to the wider economy? I doubt it. He did it primarily because he saw opposing the tax as a popular cause and was hoping for a lot of monetary support from the big miners in the 2010 election campaign. Why did he set his face against the carbon pricing scheme? Because it was the price of getting the backing within the party that allowed him to wrest the Liberal leadership from Malcolm Turnbull and because he could see what a popular cause it would be to oppose this ‘great big new tax on everything’.

Now, I have no doubt that keeping his promises to get rid of the mining tax and the carbon tax – delivering on the commitments he made as a result of policies pursued in Labor’s term – will be among his highest priorities. But my point is this: Having delivered so handsomely for the mining industry, I doubt if he’ll feel in any way indebted to the miners. Indeed, he may well feel he’s the one that’s owed. Certainly, he’ll feel the miners have had enough favours to be going on with. And it won’t surprise me if that’s the attitude other industries take: that the miners have had their turn and it’s time to give other industries a go. I suspect the mining industry’s lobbying power has just reached its zenith.

Does this analysis shock you? Does it seem extraordinary cynical? Sorry, it’s just being brutally realistic. We all pursue our self-interest, but we all cloak our self-interest in arguments about how this would be in the best interest of the economy. All I’m doing is stripping away the bulldust.

Most people in business are hoping that with a more enlightened government in power with a big majority in the lower house and a reasonably workable Senate after July, we’ll now see some major economic reform – if not in Abbott’s first term then certainly  in his second. I think this is an idle hope.

In a prophetic speech he delivered in May – and which he’s in the process of expanding into a short book – Professor Ross Garnaut argued that our political culture has changed since the reform era of 1983 to 2000, in ways that make it much more difficult to pursue policy reform in the broad public interest. ‘If we are to succeed, the political culture has to change again,’ he said. Policy change in the public interest seems to have become more difficult over time as interest groups have become increasingly active and sophisticated in bringing financial weight to account in influencing policy decisions, Garnaut said. ‘Interest groups have come to feel less inhibition about investment in politics in pursuit of private interests. ‘For a long time, these past dozen years, it has been rare for private interests of any kind to be asked to accept private losses in the interests of improved national economic performance.  When asked, the response has been ferocious partisan reaction rather than contributions to reasoned discussion of the public interest in change and in the status quo,’ he said.

I would remind you that, though John Howard’s introduction of the GST is a notable exception, the many reforms of the Hawke-Keating era were achieved with bipartisan support – something that’s unthinkable today. Much of that reform, particularly in the area of taxation, involved packages of measures in which particular interest groups suffered some losses, offset by other gains. As Garnaut argues – and I’m about to demonstrate – this kind of co-operative give-and-take between interest groups willing to accept reforms in the wider public good simply isn’t conceivable today.

My way of making Garnaut’s point is that since the reform era of the 1980s and 90s we’ve regressed to a culture of rent-seeking. You can see this at the level of the political parties and at the level of the industry lobbies. When Howard had the courage to propose introducing a GST, Labor saw its chance to regain office by running a populist scare campaign against it, and came within a whisker of winning the 1998 election. At the time it professed to be righteously opposed to such a regressive tax, but when it finally regained power seven years later, the idea of doing something about that supposedly abhorrent regressivity never crossed its mind. When, in turn, the Rudd government – in its own quite ham-fisted way – attempted the risky reforms of installing the ‘economic instrument’ most economists recommend for responding to the challenge of climate change, and rebalancing the tax system by reforming the taxation of mineral deposits and using the proceeds to reduce taxes elsewhere, Abbott lost little time in deciding to take advantage of Labor’s vulnerability.

Do you really think the events of the past three years will have no bearing on the Labor opposition’s attitude to any controversial reforms Abbott might propose in the next six years, or that Abbott’s foreknowledge of this attitude will have no bearing on his willingness to propose such reforms? The truth is the nation has fought itself to an impasse on controversial reform – of the labour market as well as taxation – and, among the industry lobbies, the miners have played a more destructive role than the rest.

Now, you can respond that the miners did no more than what you’d expect them to do: oppose two new taxes they perceived to be contrary to their industry’s interests. But this is making my point: the reason the outlook for major economic reform is now so bleak isn’t solely because the two sides of politics have regressed to short-sighted, self-interested advantage seeking, it’s also because the industry lobby groups have done the same thing. There’s nothing new about industry lobbying but, as Garnaut says, in the past dozen years it’s become far more blatantly self-interested and far more willing to devote large sums to advertising campaigns to oppose whatever government reforms an industry sees as contrary to its interests.

What hasn’t yet occurred to many business people – but you can be sure is well understood by the politicians and their advisers – is that when industries lobby governments for favours or in opposition to new imposts, the various industries are in competition. It’s easy to imagine the government’s coffers are a bottomless pit but, in fact, there’s only so much rent to go around. As an economist would say, all concessions have an opportunity cost. It’s easy to believe all industries could pay less tax if the pollies would only make households pay more tax, but I wouldn’t hold my breath waiting for it to happen. I doubt either side of politics would see that as consistent with their own self-interest. The truth is, when one industry gets in for a big cut, there’s less left in the pot for the others.

That industries don’t understand this simple point about opportunity cost – don’t realise they’re in competition with each other – is easily demonstrated by the demise of Labor’s mining tax package. Think about the original package: the big three miners were going to pay a lot more tax on their resource rents, but pretty much the whole of the proceeds was going to be distributed to other industries. In particular, all companies (including miners, big and small) were getting their company tax rate cut by 2 percentage points, small miners were getting a resource exploration rebate, small business was getting instant write-off of most assets, the banks were getting more concessional taxation of their depositors’ interest income and the financial services industry was getting its great dream of having compulsory super contributions jacked up from 9 per cent to 12, a one-third increase in contributions. So three big miners had a lot to lose, but the rest of industry had a lot to gain. So what was the rest of industry’s attitude to the resource super profits tax? Didn’t like the sound of it. And what did they do when the miners sought to scuttle the new tax? Precisely nothing. What happened then? The exploration rebate was to first thing to disappear and, in several stages under Labor, the cut in the company tax rate got whipped off the table. Now, with Abbott’s plan to abolish the cut-down mining tax, the small business concessions are being withdrawn and the phase-up of compulsory super contributions has been deferred for two years. With all the pressure on the Abbott’s budget, and the super industry extracting a promise from Abbott not to make any further savings on the concessional taxation of super, I’m prepared to bet the two-year deferment will become permanent.

Thus did the rest of business allow the miners to screw them over. And thus did the miners destroy faith in one of the techniques tax reformers believed made major tax reform possible: put together a large package with a mixture of wins and losses and the various industry lobbies keep each other on board in the wider interest.

But it doesn’t stop there. When the miners and the rest of business dream of further tax reform under the Abbott government – perhaps after yet another root-and-branch tax review – what do they have in mind? Mainly, a big cut in the company tax rate. Do you really see the Abbott government daring to fund such a cut by increasing the GST? Had the minerals resource rent tax survived and got past its accelerated depreciation phase, the fact that the most highly profitable part of the corporate sector (along with the banks) was paying a lot more tax on its profits, would have greatly strengthened the argument for a general cut in the company tax rate (this is particularly so because mining is so heavily foreign-owned). So the absence of the resource rent tax makes a cut in the company tax rate a lot less likely. One way a cut in the rate could still be afforded is if was covered by a broadening of the base by the removal of sectional concessions. But the bitter experience of the demise of the mining tax package makes it less likely any government would risk proposing such a compromise.

We can continue going down the road of ever-more blatantly short-sighted and narrowly self-interested behaviour by political parties on the one hand and industry lobby groups on the other, but while we do so it’s idle to dream of major, controversial reform. What we can do – as the miners have shown – is veto any reform we don’t fancy.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

    • Unfortunately, likely. Or, he delivered this speech BECAUSE he knows that his days in the press are numbered?

      In any case, the effectiveness of populism in this country is mind warping. Time to think about Episode 20, me think….. or to revisit kinder…..

      Humpty Dumpty sat on a wall,
      Humpty Dumpty had a great fall.
      All the king’s horses and all the king’s men
      Couldn’t put Humpty together again……

    • “The further a society drifts from truth the more it will hate those that speak it.” -George Orwell.

    • Let’s be honest. After a speech like that it is best retirement proceeds forthwith. Fortunately the speech garnered the publicity it deserved.

      Gittins conveniently ignores the fact that the original RSPT was a dog and widely condemned by not only the resource sector but also by informed commentators. Foisted on the sector with minimal consultation and piss-poor understanding of its implications across the sector both nationally and internationally. It too deserved its fate.

      Following consultation with selected industry corporates a revised tax was launched in a relatively consultative bipartisan fashion. The old boy’s memory must be fading as he clearly ignores this.

      Opposition to the carbon tax was deeply seeded within the business sector, even by those who ostensibly spoke in support of it. It too will like Gittins will go the way of the dodo.

      Gittins blithely omits reference to a government overt targeting one sector of industry in order to further garner resources for its redistributive bent. These financial resources wre in turn demanded by a raft of special interest groups (vested interests) clamouring for their own concerns irrespective of impact on others – this is the nature of modern economies – and I would suggest the resource sector is the least rent-seeking of all.

      The old fella wanted to go out with a bang, to be seen as some sort of reformist firebrand going loudly into that good night. Sadly he’s ended in a whimper, a frail rail against the dying of the light.

      Peaceful retirement Mr Gittins.

      • And… in comes the paid mining voice (representing 80% foreign owned mining) to remind us that Rudd was a moron (which we haven’t forgotten btw) but conveniently forget that the mining industry chose the ‘all that matters’s is us’ engagement on the issue.

        This is just reinforcing Gittins’ case – and the rather slimy attempt at a threat to all those that publicly speak against your owners is just eeuuwww.

      • I come from the perspective that vested interests are the economy. Gittins unfairly targets one sector that was seen by the recent government as a cash cow not warranting equitable treatment under Australian corporate tax regime.

        Understandably the sector itself together with concerned informed analysts raised serious objections to the tax and justifiably so. Gittins refuses to acknowledge this reality rather preferring to lambast in typical left fashion this much maligned industry – again ignoring the chorus of vested interests making demands of both the sector and legislative capture of profits over and above that applied to any other sector.

        It was a cheap shot from a faded journo. The resources sector is far down any scale of vested interest rent seeking – think finance, education, welfare, green, property – all active participants in the fine art of rent seeking – which I will add is an important part of the economy. Like it or not.

      • Poppycock and spin – this is just you astroturfing for your big (non-australian owned) mining interests (yet again).

        Resource Rent Taxes relate to the non-renewable nature of the resource and not to corporate profits. Rudd made a dogs breakfast of it but that doesn’t undermine the intellectual position.

        And there we are – back to the utter bullish*t that vested interests acting selfishly as amoral players somehow magically results in a moral system – it doesn’t. Mining interests got what they wanted and society be damned there is nothing good that came of it except for the few capital owners of the mining companies.

      • Aj like Gittins you overlook the fact that there is now the MRRT . On top of royalties. On top of all other taxes. Applicable to coal and iron ore only. But rest assured should uranium or nickel or whatever reach highly profitable status the ornery hands of government will decree that these too should fall under the spurious banner of a rent resource tax. RSPT was a debacle and let’s not forget it was coined a ‘tax on super profits’ forget the rent resource palaver.

        Read the Hannan excerpt below and wise up my friend.

      • This is not a debate – this is just you obfuscating for your masters. There is so much straw and misleading rubbish in that last comment that it is not worth anyones time.

        Meh whatever. Just remember that the finance industry do this better than you clowns with much smarter and (richer) people. What comes around goes around.

  1. What a doozy!

    Well done Mr Gittins – that is a superb.

    Retirement? Well I can understand if working at Fairfax is driving you mental but don’t turn your brain off please. Relax and contribute comment and articles at your leisure to the new forms of media that are growing from the dry bones of the old.

    Note: Buried in that speech was a reminder that how Labor ‘opposes’ will be critical. The ALP must argue for principled economic reform and not short term cynical advantage. There is still a large market for truth and integrity in economic policy. The fact it has not been tried for a generation would make it a refreshing change.

    • What a rollicking thread this has been today!

      After reading all the comments I went back and reread the speech.

      Many of the points raised about Mr Gittins views on other subjects and the faults of the RSPT are warranted as is the point about CAD and land policy.

      But i don’t think any of that detracts from the central point – the opportunistic point scoring and increasing refusal to argue economic policy, other than on the basis of its immediate tactical value, by politicians is in part the result of the business community doing the same thing.

      All of our generations are capable doing much better than this and I reject the nihilism that holds that aspiring to do better is futile.

      Despite my criticisms of Mr Gittins on other topics and at other times, his stridency on this topic is welcome.

      • @Pfh007

        Democracy is a tricky stuff. If I were given the power to prevent people piling onto each other over limited housing stock, and if I fail to use that power to do just that, then people could legitimately claim my negligence. But in reality I do not have that power, nor does anybody else. So, it looks to me that the only realistic option to prevent a housing bubble that is compatible with democracy is elastic supply (i.e., what Phil has been talking about) and broad based land tax. Given the tremendous amount of waste that is generated from the formation of a housing bubble, I certainly support these options (in fact, I was on record supporting / advocating both).

        Having said that, I am not sure as to exactly how to achieve these outcomes. Cutting red tapes, releasing lands, taxation reform, etc., involve different levels of governments. Intense lobbying at the federal, state and local levels will be necessary. It is said that 1/3 of Australian households are outright owners, 1/3 mortgaged owners, 1/3 renters (with the first two groups having vested interest in rising house prices). If all the 3 groups simply lobby “equally” then the outcome is fairly obvious. Even if it is possible to “turn” some of the first two groups to the affordable housing camp, the whole process will take a long time.

        As you may know, I am heavily investing in Fleetwood for now (I just topped up more shares using the dividends from my other holdings). I think their affordable / manufactured accommodation is just what we will need in the current housing environment. In fact, it is hard not to like their vision (for me anyway). As Buffett said, why do not you invest in a company you really like?

        I do not feel any pain / frustration from renting, but I can see a lot of resentment in the Comments. What I do not understand is; why do not these people invest in Fleetwood? Or, if they want to profit from the overextended fools who are part of the rising house price problems, why do not they invest in debt collection businesses? Some may argue that that act is divisive, but I disagree. It appears that the society is already divided from the housing bubble; their investment in debt collection businesses will not make the matter any worse. After all, if profiting from rising house prices is acceptable then why not profiting from the debt that supports it?

      • Dumpling,

        Your approach sounds sensible to me.

        For me the issue about housing is simple and doesn’t really involve complex ideas about who is motivated by what and whether you can bundle them up into generations or people living in one location or another etc.

        I don’t believe this is some grand conspiracy nor the inevitable result of our constitutional framework or equating something like a desire for ‘ambience’ with a desire for reasonably priced shelter.

        For me it is much much simpler.

        We currently do not have a competitive and efficient market for land and housing.

        That we need one and that there are enormous economic costs if we do not work towards one is unarguable.

        That is the stick by which to measure all policy proposals.

        If someone says – in effect.

        “I am opposed to improving the competitiveness and efficiency of the market for reason XXX’.

        Fine – let them do so and let that be debated.

        If reason XXX very narrowly benefits only a sectional interest – call it out – because most sectional interest recipients desperately try to pretend their narrow interest is actually a broader interest. That is why rich people buy newspapers and senators. They need some way of drowning out those who might say – this is your bloody interest and it is BS that it benefits a lot more people than you.

        But please lets not get lost in the post modern relativistic forest that every interest is equal and every splinter and log is the same.

        They are not.

        The issue is whether we have an efficient and competitive market for land and housing.

        Let those who feel they have some reason that we should accept less than that, make their case and good luck to them.

        There are some good reasons – for example most people would be happy for a competitive market to be restricted sufficiently to provide for public parks, protect some nature reserves and habitats for are unique fauna and flora. Doing such things has a cost and we can agree to accept them.

        But we (and I mean anyone who wants a democratic and productive and sustainable economy) must be unrelenting in ensuring that the cost and sectional benefit of any ‘reasons’ proposed are well understood.

        As a society we can agree to have the most demented and dysfunctional and unfair and inefficient land and housing market we like.

        I happen to believe that the current situation is not the result of an informed public debate but rather a combination of ignorance, complacency and an increasingly shrill campaign by a few to make some narrow sectional interests in the current inefficient market appear as a broader public interest.

        There are many many people who have owned their home outright for many years (and who have seen the amazing windfall increases in the value of their homes as the RBA allowed the debt bubble to metastasize and well meaning planners to choke supply and govts to milk tax new land releases) who have no idea of the damage that is being caused to the economy by an inefficient and uncompetitive land and housing market.

        They are horrified when it is explained to them and while they believe they are entitled to a natural increase in the value of their property they do not feel the same way about the full extent of the windfall. The ones that get really shaken are the ones who on realising it was a windfall realise that they have spent it and borrowed against AND that the windfall like many windfalls may not have been permanent.

        Many would support measures that are clearly designed to improve the efficiency and competitiveness of the land and housing market. But they will not support maintaining a broken market and simply redistributing its broken benefits to a different group.

        Don’t believe the bull shit, that is commonly vented, that the average Australian or Bogan is some ignorant brute who is as selfish and grasping as the venal vermin in our midst. The vermin who desperately with spin and graphics and volume try to pretend their sectional and private interests are for the ‘common good’.

        Note: I have nothing against vermin but I don’t believe we should lightly accept their recommendations on how to store our grain.

        /rant

      • @Pfh007

        “the most demented and dysfunctional and unfair and inefficient land and housing market”

        I think you nailed it there. I have been arguing that our housing problem can be traced back to the dysfunctional housing market, which is essentially a pseudo market. Any market that allows leverage and yet lacks shorting mechanisms (and the price discovery mechanisms that come with it) will become dysfunctional due to lack of symmetry.

  2. Wow, are we sure that it was actually Gittins! that wrote and delivered this speech?

    (edit) I’ve just read it a second and third time and it really is one of the most profound pieces from a mainstream Australian journalist in a long time. I just wish it had received more media attention.

  3. I’ll almost forgive him three years of cheerleading the mining boom for that. Almost.

    As for rent-seeking and policy reform paralysis. I’ve just spent a few weeks in the U.S. If you think its bad here you ain’t seen nothing yet.

    • Fair point Lorax. We all like to have a good whinge here and there, but we should never forget that we’ve got a bloody good deal compared to almost everyone else on the planet 🙂

      (that shouldnt stop us from wanting something better though. we wouldn’t want to become complacent)

    • At least in much of the USA, there is no rent seeking in urban land, which is probably the worst possible manifestation of it in economies all over the world right now.

      I am not impressed with analyses of “rent seeking” that do not even mention this, and yet regard opposition to a targeted tax, as “rent seeking”. This is a bit like calling oppressed minorities wanting equal rights (eg in Pakistan) “subversives”.

      The commodities boom never had to distort the Aussie economy; most of heartland and southern USA has converted their own commodities boom into real local economic competitiveness and growth. Blaming the resource extraction sector for the distortions is ridiculous, and calling their opposition to targeted taxes, “rent seeking”, is ridiculous.

      This is simple “rule of law” stuff.

      Aussie deserves to kill its entire economy by strangling everything that is still moving, like Chavismo government looking for new scapegoats. The resources sector is doing “too well”, let’s strangle that too, instead of taking the tourniquet off the rest of the economy.

      • +1. Also no mention of the retail industry constantly demanding interest rate falls.

        Lefties act like this mining tax was going to fund some sort of no work utopia for us. I doubt it.

        I think it was easy to knife Rudd mostly for his First Home Vendor’s Boost, Big Australia, and allowing the rich Chinese to come in to take our real estate. All this after he all but promised housing affordability.

      • Guys, remember, he was addressing the Australian National Conference on Resources and Energy. He’s simply talking to his audience. He’s not going to talk about housing/retail to them

  4. Wow! Old man Gittins! turned himself into a corporate suicide bomber!

    So when is he going to sell his IPs and speak in the same candid way about house prices?

    • disco stuMEMBER

      I doubt it, as he says himself:

      “We all pursue our self-interest, but we all cloak our self-interest in arguments about how this would be in the best interest of the economy”

      As bulldust free this article from Mr Gittens appears to be, as one of the baby boomer cheer leaders in chief, there hasn’t been a single article put forward by himself that hasn’t justified our high house prices, repudiated the level of private debt carried by this country, nor address the flaws within our Superannuation system that is helping to enrich his generation at everyone else’s expense.

      Gittens may well see bulldust everywhere, but he is yet to look in the mirror and see the dusty shrouded reflection staring back at him.

      • But DS, are not Gen X and Y who complain about Boomers, doing exactly the same thing. Dressing their interests (getting their hands on their parents’ homes) as national interest? Gittins’ comments could well be directed at this sort of intergenerational nutjobbery.

        I note that the main increase in house prices relative to wages occurred in a small period after 2004. I suspect due to low interest rates. I also suspect that it was not just boomers who bought up property at that time, but also many of the X and Y who shot into the market lured by low interest. So was it really the boomers, or the first cohort of X and Y who made a quick killing?

        I also wonder what will happen if (and when) the bubble bursts. Will it be X and Y people who benefit, and Boomers who lose? Or will it be cashed up Boomers who will scoop the pool? I know of several who have large stashes of cash at low interest rates who could easily snap up real estate with that cash should the market tank.

        The problem with this obsession with boomers, is that while it gives people something to grumble about, it detracts from a focus on the specific problems you mentioned – which are independent of the Boomers vs XY faux issue.

      • Indeed. As discussed below, “people have a tendency to see the splinter in their brother’s eye but not the mote in their own”.

      • disco stuMEMBER

        Really Emess that is the limit of your rebuke? Send up a straw man about a blip in house prices after 2004 relative to wages growth??

        That year happens to be smack bang when the median members of GenX turned 30 – what do 30 year olds who want to start a family do? They buy a house – what would you have them do, wait forever?

        While you might think I’m arguing from self interest, I’m actually arguing from a basic human right to be able to start a family and raise them in dignity within your own home – something which the boomers took for granted, and once done, through their nimbisim and shirking of generational responsibility, effectively made it as hard has possible for the following generations to enjoy.

        Mote in my eye or not, the fact is the conditions necessary to give birth to our abominably high house prices occurred under the boomers watch – and you’d rather blame a bunch of 30 year olds who are keen to get on with their lives and start a family?

      • Well DS, I read down to the part where you described the 2004 et seq increases in prices as a ‘blip’. At that point I concluded that I might as well be arguing vaccination with the anti vacc nutters or arguing fluoridation with the ant fluoride nutters.

        Anyone who reckons that this is a ‘blip’ (ffs), is not in touch with reality:

        http://www.macrobusiness.com.au/2013/02/the-history-of-australian-property-values/

        Yep, debunked right here on MB.

        Housing affordability IS an issue, but it will not be addressed by self interest cloaked as arguments about what is best for our economy.

        If we want to get housing prices down, we need rational debate – not hysterical intergenerational warfare.

        The point I made about the XY generation buying their homes as being a contributor to the rise in prices was to point out the utter mindless foolishness of the intergenerational war meme – so don’t try and twist it to something else please. It is easy so easy to see through. We need to understand the reasons for the lack of supply and address those reasons.

      • disco stuMEMBER

        Anti-vaccination, anti-fluride nutter…. oh and so by prefacing your retort to me with that your implying I’m an anti-boomer nutter? Wow you must have been captain of the school debating team to have come up with a tactic like that.

        I can see you can post links too, well done, here’s another one from Philip Soos:

        http://www.macrobusiness.com.au/2013/05/the-history-of-australian-property-values-part-2/?utm_source=Media+List&utm_campaign=268302b491-RSS_DAILY_MAILCHIMP_CAMPAIGN&utm_medium=email&utm_term=0_0f867adbe5-268302b491-306508257

        Refer to his 3rd chart down and you’ll see that the increase in house prices after 2004 (as per your first post) was a comparative blip compared to the run up that occurred prior to 2004…. what was it you were saying about debunking?

        Feel free to run off and post some more links or critically sift through some more of my past posts if you wish to continue to try to point score against me, unlike some my ego doesn’t need constant posting ‘wins’ to in order to prevent it from deflating.

        BTW – my original post wasn’t intended to generate such debate, it was merely my disdain for the ME generation and Ross Gittens in particular, showing through.

        As for twisting things and seeing through, do you really think we need to continue investing time in understanding the reason for the lack of land and housing supply?

        You sound like one of those Japanese whalers telling the world that they need to kill more whales to help them understand their role in the ecosystem, when everyone knows the only thing their killing with that argument is time while they continue the slaughter.

        The reasons for our inflated land and house prices have been debated ad nauseum on this site and many others, they’re plan and easily identifiable.

        Stand around and have a rational debate with yourself by all means, but chances are most people will simply get bored and fall asleep. Meanwhile as you debate why our house prices are so high, the financial slaughter and impoverishment of the younger generations continue.

        What is needed, is to generate a broader discussion and action in the community, to raise it to a level of wider conciousness when people actually stand back and go, “Hang on – something is broken in our system and people out there are hurting”.

        One tactic is to take an occasional swipe at a privileged and selfish generation that have skin like cotton wool, and who fortunately never fail to take the bait… but at least if they can feel indignant enough to respond it means that they’ve actually been engaged on the issue, however temporary, and spent some time thinking about it…. plus I enjoy the occasional bout of trolling.

        Congratulations on thinking about it 😉

      • emess ‘getting their hands on their parents’ homes’

        They should build new houses beyond the urban growth boundaries funded by their productive enterprise instead.

      • But DS, are not Gen X and Y who complain about Boomers, doing exactly the same thing. Dressing their interests (getting their hands on their parents’ homes) as national interest?

        Yeah, in the same way African slaves wanting emancipation can technically be described as their self-interest.

      • DS, that reference you posted supports my argument. What is your point?

        RP. Comparing Gen XY to African slaves? Oh come on!

        Fellas, I know I cannot convince you, but I hope that some others who care about housing affordability can see the silliness of the intergenerational hate campaign. I say again, if we want to solve that problem, we need to look at real solutions.

        I can’t debate this much longer today, I have my weekly meeting with the local Boomer Exploitation Committee of XYs (BEXYs). We are writing a manual to co-ordinate our nefarious activities to be called “Protocols of the Elders of Zetland” wherein our evil plans are all hidden.

      • @ disco stu

        This is sort of off topic, but your description of Japanese whalers is not quite right.

        BBC aired an informed and balanced documentary on this issue several years ago (with luck, you might be able to find it in their archive somewhere).

        The International Whaling Commission (IWC) is the global intergovernmental body charged with the conservation of whales and the management of whaling. It is set up under the International Convention for the Regulation of Whaling signed in 1946. In short, the IWC is *supposed* to measure and monitor the number of whales in the wild and assign quotas so as to maintain sustainable whaling industries. Instead, the IWC was hijacked by the green environmentalists and became a political football in the 1980s. The “scientific whaling”, and all the other nonsense that stemmed from it, must be viewed in this historical context.

      • disco stuMEMBER

        Lol – funny how the generation with the most to lose from any normalisation of Australian house prices is the one that is usually the first to run out the ‘lets not assign blame’ line.

        Ultimately all Australians are going to have to pay for this foolishness that has been allowed to happen under the boomers ‘watch’. One would hope in equal capacity as to respective demographics ability to bear the cost. But since the particular boomer demographic has benefited the most from this inter-generational theftocracy and ergo has now accumulated most of the assets untoward themselves, like it or not, you will ultimately have to bare much of the cost. After all, that is where the money is 🙂

        Have fun at your evil arch-boomer world domination meeting, I’m sure it will be a blast discussing those plans on how to get blood out of a stone, especially over a cheese fondu with your favorite Nana Mouskouri records playing in the background.

        Dumpling, that is fascinating, I will refrain from using that analogy in the future.

      • Hi DS, Evil Boomer here.

        Just back from my conspiratorial grind down the workers, er, XYers meeting.

        Here’s the plan.

        Having engineered a boom, we are going to engineer a bust.

        Many of us are cashed up, and so what we are going to do is bust the housing market. What that will mean is that banks will be unwilling to lend to home buyers needing even medium mortgages. So those of us Boomers with cash will be able to scoop the pool at bargain basement prices, while XYers who will not be able to get mortgages will look on with impotent fury. Don’t worry though, rents won’t change.

        Now the risk to this fiendish plan is that someone will start making the housing market into a real market by…

        Reforming the Federal/State taxing arrangements so that…

        Instituting a State based Land Tax is possible, which would…

        Enable States who need to provide and maintain infrastructure can do so without the Feds ripping the money off somewhere else, and…

        The Feds who control immigration have to pay something of the cost of that immigration to the States who have pay for much of their upkeep in infrastructure, health education etc.

        If States were thusly not penalised for increasing land supply, then maybe land supply might be increased.

        Of course, that would mean that one would have to look to market theory and the laws of supply and demand to solve the XY housing problem, and abandon the intergenerational hate campaign.

        Small chance of that, so our evil plans are sure to come to fruition.

        NOTE: While State land taxes are theoretically possible, unless the States get a guarantee from the Feds that increases in land taxes will not be undercut by equivalent reductions in Federal payments to the States, nothing will change. What would be the point in the States pulling in another few billion to pay for infrastructure via land taxes, if the Feds reduce States’ payments by the same amount in the name of the sorts of processes that Gittins is referring to.

      • Hate to break it to you.. You’ll have to pry admission that there is a housing bubble from his cold, dead hands.

      • yeah, you’re probably right Mav, but that doesnt detract from what he’s said to the miners in this speech. Like i said, he’s moving in the right direction – that’s good enough for now 🙂

  5. Good read. This line stuck out to me:

    “We all pursue our self-interest, but we all cloak our self-interest in arguments about how this would be in the best interest of the economy.”

    Really, we are all bots.

    • +1. We have been conditioned to think extreme self interest played across the economy has a moral outcome – some kind of Randian inspired myth.

      It doesn’t, we just end up with a cruel and greedy society with big winners and big losers.

      • When I read ‘self interest’, I didn’t see it just meaning a financial self interest, it could also be a favoured ideology or set of rules that can be argued are in the best interest of the economy…

        “Ban Usury”

        “Bring on Macroprudential Policy”

        “Return us to the Gold standard”

        Shouted the bots!

      • Some may BB, but not all do. Within the human character are fine traits – greed and selfishness has been trumpeted as the human condition, as something from which the wonder of humanity flows. This is complete and utter fabricated bullshit, they may be part of the human condition, but the great and wondrous parts of humanity exist despite it, and in the face of it, not because of it.

        There is a big difference between ‘i’ll be better off’ and ‘we will all be better off’.

        It’s easy to describe an amoral and relative world, but it is not one many would choose to live in. At a simple level PB has nailed it, rentseeking undermines the social contract that we will all do our best and all will be better off. There is no social contract to rentseeking, it says, ‘my family and i will be better off and you can go whistle’.

      • “There is a big difference between ‘i’ll be better off’ and ‘we will all be better off’.”

        There is no outcome where everyone is better off, only people trying to push their idea of a utopian world where that would be the case. I agree that it’s not always born out of greed, people can get wrapped up in a self-interest that’s unselfish.

    • I pursue my self interest, but I do not bother to pretend how this would be in the best interest of the economy…..

      Is it because I am honest? Or because I am just pragmatic? I doubt anybody with half a brain would fail to see through, so I do not see much point in pretending…..

      • Adam Smith was right, though. He distinguished between self-interest in a competitive market, and rent-seeking. This is what we need to “get”.

        “It is not to the benevolence of the butcher or the baker that we owe our dinner, but to his own self interest”.

        Now if the butcher or the baker were part of an oligopoly racket in food, that would be “self interest” but it would not be the same. This is exactly the kind of thing Adam Smith was addressing; it was rampant in his time. He was making an appeal to change the political structure so that self interest could be harnessed for good.

      • Phil, that’s absolutely spot on.

        The worst thing that the oligopolists/monopolists do is quote Adam Smith as their ideological champion.

        they are all deluded in thinking that he would ever have supported their mercantilist rent-seeking view of the world.

      • Right. I guess only those who rely on rent seeking feel the need to pretend…..?

        Straight shooters, aka “I will beat you fair & square” type, would feel no need to pretend…..

  6. Gittins has shown he is not ready for retirement at all. His history of discussing the failure of consumerism to generate happiness is equally biting.

    Gittins might still have some great work ahead of him.

  7. GunnamattaMEMBER

    Give that man a cigar!

    Good read. I am just wondering what he makes (is he aware of?) a lot of stuff he has written in the last few years.

    But his point is 100% on the money. The next step is to drive this into Australian politics.

    • Yes, I sense that the tide started turning…. that our giant domino started falling one by one……

      What comes next is anybody’s guess, but I am afraid it won’t be pretty….

  8. “the address was so honest that it hasn’t made any national media”

    One way to look at it.
    I think it’s best to see it as a club and MB is not in it. Gittins just resigned from the club with extreme predudice.(i.e. shat in the nest)

    This is a small step towards AUS leadership finally growing up and seeing ourselves as we are:

    Greedy, selfdelusional, selfish, incable of introspection, oafish morons.

    • +10 Gittins himself may have suppressed this speech.. he has a bully pulpit in a national newspaper, for crying out loud.

      Thanks to MB for publishing this speech.

      • Maybe it wasn’t Gittins who suppressed it. He has an editor.

        But maybe out of self interest he didn’t even submit it as a column. Maybe he wants another year or two!

        The currency debate is also a self interest debate. A fall in the AUD would reduce the wealth (in international terms) and lifestyle of many Australians, increase costs of imported manufactured goods and reduce employment in those firms that import, distribute and service imported goods like cars, but decrease the rate of loss of employment and wealth of those struggling against imports.

        It’s all competing short/medium term self interest.

        The amazing thing is how Labor was so incompetent at selling the benefits of the mining tax to everyone apart from the big 3, their employees and contractors!

      • Yes, you have to balance the interest of local producers and the (debt-fueled) consumers. Surely, the national interest in this is to tilt the balance towards the producers.

        BTW, the current system of free floating AUD is not in the interest of anybody, certainly not in the national interest.

  9. reusachtigeMEMBER

    I’d love to have seen the reaction in the room to that one. Maybe one lone slow clap?
    .
    I no longer know who is good and who is bad, except for The Doc, I still know where he sits, with laser on forehead.

  10. I hate to play the Devil’s Advocate here (actually I love playing the Devil’s Advocate) but the problem I have with this sort of simplistic rhetoric is that people have a tendency to see the splinter in their brother’s eye but not the mote in their own.

    Let’s take one example: why does Mr Gittins not dedicate as much venom to rent-seeking by the finance industry, notably through the convoluted, inefficient system of compulsory, private, defined-contribution superannuation.

    This is often hailed – by its beneficiaries!! – as one of the great “reforms” of the Hawke-Keating era. Well it’s not! As we have discussed on many other occasions it has simply been a device to feed captive customers into the jaws of the (largely Sydney) funds management industry which has now amassed $1.6 trillion of funds on which to extract their 1% pa fees for doing very little.

    The problem with the “rent-seeking” paradigm (uggh! sorry about that ugly word) is that it’s concerned only with the “seeking” of rent. It is not concerned with the far more important problem: the ongoing “allocative inefficiency” of systems based on rent-transfers.

    Take, for example, the mining rent tax in Australia.

    This arose out of the rhetoric of the “two-speed economy”: the fact that Western Australia and Queensland in particular were defying God’s Will by growing more quickly than Sydney and Melbourne. (You’ll notice that there was precious little talk of “two-speed economies” in the previous two decades when the situation was reversed. And I suspect there’ll be precious little talk of it in future now that the mining boom has collapsed.)

    If we use the idiosyncratic definition(*) of “rent seeking” preferred by HnH, the “attempt to obtain economic rent” by imposing a tax on the mineral rents of Western Australia – with the proceeds used to boost the lagging economies of Sydney and Melbourne – is itself the most egregious rent-seeking!!!

    However, once the regime is in place there is no longer any “attempt to obtain” economic rent (since it has already been obtained) and presumably it ceases to be rent-seeking.

    What it doesn’t cease to be is “allocatively inefficient”: it continues to subsidise and promote industries and cities which enjoy no comparative advantage, and which will never bother to obtain a comparative advantage because it’s easier to live off the rents extracted from those parts of the continent which do.

    There is no space here to go into the generalised definition of allocative efficiency (couched in terms of metastable distributions of rights), but an outline solution to the problem of allocative inefficiency in the “polity market” may be found here and here.

    – – – – –

    (*) If I have misinterpreted your definition of “rent-seeking”, I apologise in advance.

    • You know about my posts on negative gearing, right? That the introduction of NG has most likely increased revenues for the federal/state governments, not decreased them. It may be one of what people call “inconvenient truths” for some bloggers here, but my *job* here is to point out outstanding nonsense analysis.

      Anyways, what logically follows from that analysis is that we are all beneficiaries of the increased tax receipts (and the increased government spending) generated by NG, regardless of whether we are aware of it or not……

    • Stephen Morris, I am with you on this. As I say further up the thread, before I spotted your comment, the worst possible manifestation of rent seeking in economies all over the world right now, is in urban land. I am not impressed with analyses of “rent seeking” that do not even mention this, and yet regard opposition to a targeted tax, as “rent seeking”. This is a bit like calling oppressed minorities wanting equal rights (eg in Pakistan) “subversives”.

      The commodities boom never had to distort the Aussie economy; most of heartland and southern USA has converted their own commodities boom into real local economic competitiveness and growth. Blaming the resource extraction sector for the distortions is ridiculous, and calling their opposition to targeted taxes, “rent seeking”, is ridiculous. This is simple “rule of law” stuff. Taxes should be levied like the famous statue of “Justice” – with a blindfold on, according to fair weights and balances.

      Aussie seems to be determined to kill its entire economy by strangling everything that is still moving, like Chavismo government looking for new scapegoats. But of course some “strategic industry” like Taxi manufacturing will be subsidised….!!

      The resources sector is doing “too well”, let’s strangle that too, instead of taking the tourniquet off the rest of the economy. The Aussie resources sector is heading for quite enough problems of its own due to Australia’s wider economic non-competitiveness affecting it. The Chinese will get the stuff from Peru or Madagascar if they can get it out of the ground and onto ships cheaper there.

      • Absoloodle to both Stephen and Phil.

        As I said I’d written my comment below before Stephen posted, but work got in the way before I hit the send button, so in some ways it is a bit of a repeat

    • Just about every tax is a form of rent seeking.. but I think you need to distinguish between government (public good) and private rent seeking (private greed).

      • Mav Govt employees are as rent seeking, arguably more so, as private enterprise. The rise and rise of unnecessary regulation just to reinforce the status and control of Govt individuals and interests is extraordinarily damaging and is accelerating.

      • I would argue that there is in fact no categorical difference between “public” and “private”.

        Take a specific example to illustrate the difficulty of separating two. Consider a typical Australian “grammar school” with the following characteristics:

        a) it is established under the Grammar Schools Act of the relevant state parliament;

        b) half of its trustees are appointed by the state government;

        c) half of its trustees are elected, and anyone who has ever donated $500 or more to the school gets a lifetime right to vote;

        d) half of its funding comes from the state and federal governments, but the other half comes from fees levied on the students (or their parents);

        e) the curriculum is laid down by the state but its implementation is determined by the school management, and the school is independently managed (including hiring and firing of staff); and

        f) the school management has complete discretion over who it decides to accept as a student (subject – perhaps – to some anti-discrimination legislation, assuming discrimination could ever be proved).

        Is it public or private??

        The idea of a categorical difference between “public” vs “private” arose with development of the geographically extensive “regional monopoly state”. It might be argued that “public” is really only a manifestation of “monopolistic”.

        On the one hand, what is the state other than a collection of private individuals held together by rights and obligations?

        On the other hand, there are many other collections of private individuals held together by rights and obligations (e.g. members of corporations) which we do not generally consider to be “states”.

        What is the difference?

        Some people (for example drsmithy in a previous debate) have suggested that the difference might be as follows:

        a) a state protects (and determines) “basic rights”; and

        b) a state can coerce with physical force (Weber’s “monopoly on violence”).

        But on closer examination that is a circular argument.

        The reason that regional monopoly states – and only regional monopoly states – exercise these functions is that the world as it is currently organised vests in the regional monopoly states a monopoly on these functions. It is actually a statement of the monopoly position of the state in the world as it is currently organised.

        Under a polity market, that monopoly would be broken up in favour a competitive system of states “arising voluntarily” (“Nature of the Firm”, footnote 14) to produce the Coasian optimal scale and scope of planning.

        Historically, such monopolies did not exist. In Medieval Europe, for example, feudal lords operated their own jurisdictions within the Kingdom. More famously, the western European Church and the various kings operated competing jurisdictions: not only over different areas of law (e.g. marriage controlled by the Church) but over different people in the same field of law (e.g. “Benefit of Clergy” and the “neck verse” from Psalm 51, successful recitation of which could save a cleric from hanging).

        Even in the world as it is currently organised, it is not always evident that the state (or which state) enjoys the monopoly.

        The whole debate over shifting and distributing the rents from Western Australian mining arises because of ambiguity over whether those rents belong to the State of Western Australia (to be used largely for the benefit of the people of Perth) or to the Commonwealth of Australia (to be distributed roughly per capita, and therefore largely for the benefit of the people of Sydney and Melbourne).

        Under the polity market, the scale and scope of the “state” responsible for these rents would be determined competitively according to the rules of the market.

        They might belong to the State of Pilbara.

        Or to the State of Indo-Papua-Oceania.

        Think on that!!

    • The finance industry enables Australians to live beyond their mean, and woe is the person who dare to stand in the way.

    • This is often hailed – by its beneficiaries!! – as one of the great “reforms” of the Hawke-Keating era. Well it’s not!

      Well, it hasn’t yet manifested itself to be that way, quite a different conclusion.

      As we have discussed on many other occasions it has simply been a device to feed captive customers into the jaws of the (largely Sydney) funds management industry which has now amassed $1.6 trillion of funds on which to extract their 1% pa fees for doing very little

      There hasn’t tbeen much in the way of discussion, it’s more accurate to say you reiterating the same centralised elected dictator trope than anything else.

      The ‘reform’ from Hawke-keating’ was the right idea, and they also did it to what is the reasonable limits to government intervention.

      The labelling of super as a tax is what happens when you allow simple minded acountants and legal professional dictate terms. SCG is a marginal remuneration to an individual for exertion.

      A person earning $100k PAYG is remunerated $109,250 for their efforts, with $9,250 being quarantined away for their retirement, because the culture of entitlement built up under a safety net meant people aren’t saving for themselves.

      This reaction is the right government response, and is the first critical component of the reform.

      What is lacking is the behaviour, courage, intelligenace and ability of our GPS Old-Boy dominated finance industry.

      Living a life of privilege, and all round spoiled soft sacks of shit who’ve never faced adversity bar getting stomped on the back playing rah-rah.

      The adversity necessary for the hunger to make the decisions needed at this level.

      The PERFECT example was where did Andrew Forrest get his funding?

      Keating envisaged that the likes of Forest would get his funding from this pool of $1.6 trillion, a second element of the reform.

      Andrew Forrest needn’t had go overseas, and 100% of dividends would remained local.

      Instead, we have the fund management industry eternally boosting prices by buying the ASX 10 every fortnight.

      Hawke/Keating should not be required to micro-manage the finance industry to this minutae for the ‘reform’ to be a qualified success.

      It’s the same as blaming Rudd for insulation deaths, there comes a time when explicit direction shouldn’t be required, implicit direction to be followed by the private sector to do the right thing should be pretty obvious to reasonable minded adults.

      10% of all super as our venture capital = $160 billion.

      That equals 160 projects worth a billion each,

      or 1,600 projects worth $100 million each.

      We’ve been doing it for 20+ years, and with a headstart on everyone.

      Sure amongst the 160, or 1,600 projects there will be some failures, but the aggregate pays off, as well as us having the venture capital alloaction expertise that would enhance our skills if we so much wanted to manage other peoples money as well…

      you know… finance capital of the region aspirations……

      • RP I think you’re missing the point of Super, if it was intended to provide patient VC capital, as you suggest, then it would never have been structured the way it is. Super is a pool of money structured with no other aim then to support the FIRE industry.

        VC’s partners need more than just money because money only starts the ball rolling the second stage is evangelizing your solution and getting it accepted as the norm. Only at this stage do you really learn the quality of your VC funding, and more importantly their actual end-game. VC’s without high quality industry contacts and influence are a complete waste of space, they always sell their charges short because they cant provide the real muscle needed to push for the goal line.

        Take the case of FSG if the money had come from Aussie super then I believe they would of sold out to Rio at the first sign of conflict. Why create competition when you’re already invested in a closed shop, two party mining system.

      • RP I think you’re missing the point of Super, if it was intended to provide patient VC capital, as you suggest, then it would never have been structured the way it is. Super is a pool of money structured with no other aim then to support the FIRE industry.

        A pool of money was created to (supposedly) support income supoprt in retirement, by quarantining a portfion of a persons marginal remuneration.

        By default it required the FIRE sector to be custodians, and of course ticket clippers.

        It’s size was envisaged, and as we see, so immense that the stucture isn’t a material concern, as below…

        VC’s partners need more than just money because money only starts the ball rolling the second stage is evangelizing your solution and getting it accepted as the norm. Only at this stage do you really learn the quality of your VC funding, and more importantly their actual end-game. VC’s without high quality industry contacts and influence are a complete waste of space, they always sell their charges short because they cant provide the real muscle needed to push for the goal line.

        Well you’re talking in a sense maturity risk, to scale back to bonds.

        Likewise I may be better taking it forward a step, and be more inclined to the phase after that with investment banking.

        But that said, even if we place it in the hands of VC’s, the money is so vast, the money available for such an diverse array of projects with such a diverse range maturity timeframes that it won’t matter.

        The point is $1.6 trillion, forcibly quarantined from our workers, to access as an income stream at a later date is available for investment.

        Investment is the sense you, me and the rest of MB means it to be.

        Not recycling into the ASX 10.

        To say $1.6 trillion here hasn’t gone close to reaching its potential is an understatement.

        I’m asserting that potential shortfall isn’t due to Hawke-Keatings broad vision, but due to the culture and class of people who perform at the micro level.

        Take the case of FSG if the money had come from Aussie super then I believe they would of sold out to Rio at the first sign of conflict.

        Why create competition when you’re already invested in a closed shop, two party mining system.

        Well create competition if we’ve incentivsed the system the right way. I agree in all likliehood your prescribed outcome would have occured. Why lack of competition is allowed to be so rewarding, and we’re so punitive on labour is a msytery to me as well.. but a different topic.

        But perhaps Andrew Forrest (or another likely risk-seeking candidate) had a vision and desire to be really rich, thus pursued the “super funded” goal.

        That’s why we reward risk taking yeah?

        I’m not denying mediocrity, lack of competition and rent-seeking is not the central tenet of Australian business culture.

        I am asserting that superannuation wasn’t devised by Keating, sitting down sayig “I’m going to devise a plan of no merit… muawhahahah”

        I’m asserting it has great merits, it was implemented at the macro levels, the domain of the politicians, very well, thus by point of debate with SM.

        I’m also asserting the fault lies with the participaters at the micro levels, the fud managers, et. al.

        Recognise that level, shame them, ostracise them, run a pogrom on them even. but that’s the only level necessary to adjust for super to be a very sound structure.

      • I was an investment banker at the time the Keating superannuation scheme was devised.

        I remember the fund managers rubbing their hands in glee at the prospect of all the new customers about to be fed to them.

        I – for one – had realised by early 1987 that the system was actually a tax in disguise.

        But perhaps RP is right. Perhaps Keating wasn’t being deliberately destructive.

        Perhaps he was just mind-numbingly stupid, commercially naive, and completely devoid of any understanding about how financial markets, the economy, and rent-seekers in general behave!!

        It’s rather like die-hard communists insisting that Communism would have worked . . . if only people didn’t behave the way people actually behave.

      • Keating should have made it easier to setup an SMSF (without a leverage option) and also setup a government run plain vanilla super fund.

        Its not too late for that. But the present crop of pollies are too captured to change the status quo.

      • finance capital of the region aspirations

        Sydney has about as much chance of becoming a regional finance capital as Melbourne had of becoming a sustainable manufacturing capital under the system of tariff protection maintained by the Victorian Liberal Establishment.

        But that won’t stop the Sydney Establishment from throwing endless amounts of money away in the attempt.

        And therein lies the problem of rent-seeking and allocative inefficiency in Australia.

        The politically powerful metropolises will never have an incentive to develop industries which enjoy a genuine comparative advantage because it is oh so much simpler to get some Mate in government to protect them and send some rents in their direction . . . rents drawn from those industries and regions which do actually enjoy a comparative advantage.

        And the beneficiaries of that rent transfer will go on and on and on and on about how their’s is the “Industry of the Future” – as long as government policy props them up – all the while complaining about the rent-seeking of others!!

        As I said at the outset, when it come to rent-seeking “people have a tendency to see the splinter in their brother’s eye but not the mote in their own”.

      • But perhaps RP is right. Perhaps Keating wasn’t being deliberately destructive.

        Perhaps he was just mind-numbingly stupid, commercially naive, and completely devoid of any understanding about how financial markets, the economy, and rent-seekers in general behave!!

        Perhaps it’s easy to view others people’s naivity and ignorance as stupidty when viewd through the prsim on being an investment banker.

        I’m sure many medical professional view most person’s view on biology as stupid, most automechanics view others ability to diagnose and fix cars as stupidty… or farmers view on city dwellers ability to grow food as stupid.

        We specialise for a reason, and once in the hands of the specialists, we expect them to do the right thing.

        The lack of sufficient penalty for FIRE participants is a concern of mine, as someone working in the FIRE sector.

        As I said, I find it absurd to lay blame at the feet of Hawke-Keating for using their political skill, I’m sure both of them could view your political skill in comparison to theirs as ignorant, naive and lacking any understanding of political forces… if so inclined.

        It’s rather like die-hard communists insisting that Communism would have worked . . . if only people didn’t behave the way people actually behave.

        Other capital markets tend to invest in a wise(r) manner than ours, that may have been the guiding principle.

        As I said, blame our indigenous participants. I’m not full of puff when I endorse the death penalty for banking CEO’s

      • Sydney has about as much chance of becoming a regional finance capital as Melbourne had of becoming a sustainable manufacturing capital under the system of tariff protection maintained by the Victorian Liberal Establishment.

        I never said it was likely, I openly ridiculing the chances of it, current cultural forces withstanding. But if we wanted to take a legitimate shot at being leaders, we put the right structures in place.

        But competitive advantage in many instances arises out of risk, particularly in being a leader.

        The structure put in place by super allowed our FIRE sector a big head start of virtually every other country in the world.

        I’ve hypothesised my feelings on how our reltionships with Asia, and particularly Indonesia could be different.

        For us to provide funding, investment banking, design and engineering expertise, building up the likes of Indonesia is not beyond reason.

        If we legitimately put in the hardwork, and had culture of collaboration, PARTICULARLY between our baby boomers and every other generation, instead of the gouging that occurs, we’d be a much better off nation.

        It’s perfectly understandable, and even predictable, that our worthless baby boomers took us down this path instead.

        But prescriptive meaasures are always formulated out of theory and reflection of ‘what ifs’

        But that won’t stop the Sydney Establishment from throwing endless amounts of money away in the attempt.

        And therein lies the problem of rent-seeking and allocative inefficiency in Australia.

        The politically powerful metropolises will never have an incentive to develop industries which enjoy a genuine comparative advantage because it is oh so much simpler to get some Mate in government to protect them and send some rents in their direction . . . rents drawn from those industries and regions which do actually enjoy a comparative advantage.

        And the beneficiaries of that rent transfer will go on and on and on and on about how their’s is the “Industry of the Future” – as long as government policy props them up – all the while complaining about the rent-seeking of others!!

        As I said at the outset, when it come to rent-seeking “people have a tendency to see the splinter in their brother’s eye but not the mote in their own”.

        Again, I don’t disagree with any of that, but hawke-Keatings super rforms weren’t borne out of stroking a fluffy white cat smirking “$One point six trillion dollars!!!”

        They were one cog, and a vital cog, of many.

        I make coparisons to the insane blaming of Rudd for deaths via insulation.

        The detail gets allocated to the private sector, we trust the private sector to do its job properly within the framework of normal society.

        If a tradesman can’t send a kid up into a ceiling without killing him, it ain’t RudD’s fault.

        But alas, we have long developed a worship of the efficiency of the private sector and always seek to divert blame.

        If you’re saying the private sector is inherantly untrustworthy, and the corporation is sociopathic by definition, that’s fine.

        I can see your anti-westminster stance as a solution to make competing private sector forces pull struggle against each other to eliminate this… as opposed to more socialist inclination to regulate it.. and we can have that as a starting point.

        But Hawke/keatings part in the process, if viewed (perhaps with too much optimism of private sector performance) as them doing their job properly, I would say yes.

      • I suppose there are some of us who have been proved right by history.

        And then there are others who have been proved foolish, naive and wrong.

        You’d think perhaps the latter might learn to listen to the former . . . but I suppose that would be expecting too much.

        “We specialise for a reason, and once in the hands of the specialists, we expect them to do the right thing.

        Of course, the Australian people never asked to put into the hands of “politician-specialists”. At no point have they ever consented to having all Executive and Legislative power monopolised by politicians.

        Moreover, where people have had the opportunity to choose, they have almost invariably chosen (direct) Democracy instead. I give no quarter to “specialists” who operate without my consent.

        And it’s funny how when these politicians (and their bolted on supporters) are being foolish, naive and wrong, they always tend to be foolish, naive and wrong in ways which benefit themselves and their Mates.

        And all the while they criticise others for being rent-seekers!!

      • @RP
        I’ve been involved in Venture Capital funded outfits for over 30 years, so believe me I do have some ideas about how the Money really flows. More money does not necessarily create a better outcome or more investment or do anything positive. We saw this in the pre 2000 period when every cashed up techy considered himself/herself to be a VC genius. All that happened was a fortune was pi55ed away in practically no time at all. The true VC’s stepped back and laughed at the absurd term-sheets startup were touting.

        If Australia wants to enjoy a technically led recovery its efforts need to be focused and leverage the skills and experience of its business people. otherwise Venture capital is just an excuse to throw financial caution to the wind and invest in bogus undertakings. Frankly any society that invests one penny in something like Firepower deserves to loose everything they have because there is no way around the old maxim.

        A fool and his money are soon parted!

      • I suppose there are some of us who have been proved right by history.

        There’s history, and then there’s history.

        And then there are others who have been proved foolish, naive and wrong.

        Well human’s haven’t always been universally disgusting people. The baby boomer generation are vast outliers in terms of their narcissism.

        There have been times of benelovance and altruism, otherwise we’d still be living in caves.

        Your prescriptions I understand are probably a long way towards necessary in these times, some people however make decisions but perhaps some people have too much optimism, perhaps sentiment is captured by too concentrated media, perhaps other things.

        Sentiment and policy gets shaped I agree.

        But as I argue how can baby boomers not see how much damage they are doing to the country and to their youth, some messages can’t get through.. again I agree.

        You’d think perhaps the latter might learn to listen to the former . . . but I suppose that would be expecting too much.

        You’re bordering on zealotry and ideaologue claiming yourself the one true voice here Stephen.

        It’s funny how when politicians (and their bolted on supporters) are being foolish, naive and wrong, they always tend to be foolish, naive and wrong in ways which benefit themselves and their Mates.

        No, I’m saying Caeser rules over the domain of Caeser.

        You want a line in the sand that bank bankers can’t cross.

        I want bankers killed for crossing the line.

        You want perfect legislation where politicians can’t reward mates.

        I don’t believe we can acheive perfect legislation, and thus want to add harsher penalties.. the harshest if need be.

        And all the while they criticise others for being rent-seekers!!

        Yep…

      • I’ve been involved in Venture Capital funded outfits for over 30 years, so believe me I do have some ideas about how the Money really flows. More money does not necessarily create a better outcome or more investment or do anything positive. We saw this in the pre 2000 period when every cashed up techy considered himself/herself to be a VC genius. All that happened was a fortune was pi55ed away in practically no time at all. The true VC’s stepped back and laughed at the absurd term-sheets startup were touting.

        OK, I’m retract the words “venture capital”.

        I’ll replace it with $1.6 trillion of forced savings that can be used for investment.

        Investment Banking
        Merchant Banking
        Rural Banking

        Feel free to pick a vehicle.

        I am saying that of the $1.6 trillion we have, it’s probably not best to recycle it through existing stock, but best to build new shit, give it to inventors or rehabilitate old infrastructure.

        I am saying with a sum so vast, we can pay less attention to risk because we can diversify so much.

        Winners stay one, losers get expunged.

        The winners raise the bar, until we are the best in the world.

        Bingo, a truely competively advantaged domestic industry, recruited by overseas concerns beause we are the best… and no stagnating in new ways of guoging Australians.

        If you personally had $1.6 trillion dollars, I’m sure you could build swathes of dirt cheap land, the abiltiy to reticulate it, offer cheap housing, implement automated technology … as well as buying all the necesszary politicians….you’d have Australia a manufacturing powerhouse yeah?

        Or in other words, we’d be pretty good in that sector….

        My point with super, we COULD be pretty good in that sector with such a structural advantage.

        I’m not denying the structure has been abused by poor performers, but I place the blame squarely at the feet of spineless, chinless Waratahs RU season ticket holders than I do Hawke and Keating.

        If Australia wants to enjoy a technically led recovery its efforts need to be focused and leverage the skills and experience of its business people.

        Correct, if we wanted to do that, $1.6 trillion could go a long way to funding the necessary technical skills.

        I wouldn’t be using the world’s worst practice of Australian business people however…

        otherwise Venture capital is just an excuse to through financial caution to the wind and invest in bogus undertakings. Frankly any society that invests one penny in something like Firepower deserves to loose everything they have because there is no way around the old maxim.

        Well, this is what I am talking about, financiers and scrutineers that can determine whether the likes of Tim Johnstone were legit or not.

        Those that decree him to be a fraud are the ones we want to keep investing, to be part of our FIRE sector… because somewhere in there… they do offer value for said behaviour.
        A fool and his money are soon parted!

  11. Everyone is conveniently forgetting the form of the original proposal on the Mining Tax. It was a monumental disaster and a straight out confiscation of private property. If Gittins and everyone here thinks that’s a good thing then so be it. It’s been tried before and it sure as hell is not a world I want to live in.
    Gittins attack on the farmers is pretty typical of a city ignoramus. I was a farmer in those days. What we were arguing was that we needed the A$ to be at a value where we got a fair go. We were being impoverished by a high A$ while the nation ran itself into debt with consistent rising CAD’s. Frankly why that isn’t front and centre of economic policy discussion today is the real evidence the FIRE economy rent seekers dominate. The miners are a minor issue one way or another!!! Unfortunately Gittins has never heard of a CAD and if he did it wouldn’t matter anyway because he, an urban rent seeker, benefits from the rising indebtedness of the nation that redistributes wealth from productive to non-productive.

    Just one last note…again Gittins displays both bias and ignorance re the proposed company tax reductions. What was happening ehre was a straight extra impost on productive companies. It is only the non-productive financial sector, the FIRE economy, that would have ended up better off. Now I don’t know bigger rent seekers than that bloody lot yet Gittins favours a redistribution of wealth and resources in their favour. For all the rest of us the extra 3% added to our wages Bill along with all the other extra costs that go with it in terms of Payroll Tax, Workers Comp etc far outweighed any reduction in company tax. Anyone who is actually productive in this country is having difficulty making a damned profit at all so reductions in company tax are hardly their highest priority.

    All in all, on balance, the whole thing was a waste of oxygen!

    P.S. Thanks Stephen! I got side-tracked before pressing the send button!

    • +100; Flawse, good to see this consensus emerging on this discussion thread. You said it much better than I have already.

      “……Gittins has never heard of a CAD and if he did it wouldn’t matter anyway because he, an urban rent seeker, benefits from the rising indebtedness of the nation that redistributes wealth from productive to non-productive.

      Just one last note…again Gittins displays both bias and ignorance re the proposed company tax reductions. What was happening ehre was a straight extra impost on productive companies. It is only the non-productive financial sector, the FIRE economy, that would have ended up better off. Now I don’t know bigger rent seekers than that bloody lot yet Gittins favours a redistribution of wealth and resources in their favour…..”

      Standing ovation from this corner….

    • Well put flawse – Gittins arrows in on the failure of the political structure, but the real disease lies at the CAD.

      We have endless lobby groups seeking to further corrupt our politicians into selling the farm to cover the CAD (to give them more rent). The damage here is now extensive and almost irretrievable.

      In 10 more years will we have anything left to sell? Our mines are gone, our productive business are gone and most of the best farmland will be gone as well, and possibly a big chunk of our prime residential housing as well.

      I really do think you are right – the answers lie back in time.

  12. I imagine the Minerals Council has just reduced it Christmas card order by 1.

    What’s going on. Chris Joye. Ross Gittins. I’m just waiting for Tony Abbott to cozy up to the unions now and we’ll have finally reached la la land.

  13. Were not all Eddie Obeid’s, Gina Rinehart’s, Rupert Murdochs, DNA influenced without recourse… Pheeew~

  14. Daniel Hannan: “The Anglosphere Miracle”

    “…..The rule of law is rarer than we sometimes realize. Oppression and arbitrary power are far more usual. Man is a competitive creature, domineering and rapacious when the circumstances are right. Politically, a medieval European monarchy would not have been so very different to a modern African kleptocracy. Once people are in a position to set the rules, they tend to rig those rules in their own favor. Obedient to the promptings of their genome, they design the system so that their descendants, too, will enjoy an advantage over everyone else. Arbitrary power, hereditary status, the systematic looting of resources by the ruling caste: These things were once near-universal, and are still the norm for most human beings. The real question is not whether liberal democracy was always destined to succeed, but how it managed to get off the ground at all.

    We are still experiencing the after-effects of an astonishing event. The inhabitants of a damp island at the western tip of the Eurasian landmass stumbled upon the idea that the government ought to be subject to the law, not the other way around. The rule of law created security of property and contract which, in turn, led to industrialization and modern capitalism. For the first time in the history of the species, a system grew up which, on the whole, rewarded production better than predation. That system proved to be highly adaptable. It was taken across the oceans by English-speakers, sometimes imposed by colonial administrators, sometimes carried by patriotic settlers. In the old courthouse in Philadelphia, it was distilled into its purest and most sublime form as the U.S. Constitution.So successful was the model that almost every state in the world now copies at least its trappings….

    “…..There is a reason that supporters of these precepts, both in Britain and in America, called themselves “Patriots.” They could see something that later generations affected not to see: that the liberties they valued were largely confined to the English-speaking world; and that their domestic opponents wanted to bring their political system into line with more autocratic foreign models. The tragedy of our age is that those domestic opponents are succeeding. Having developed and exported the most successful system of government known to the human race, the English-speaking peoples are tiptoeing away from their own creation. Britain’s intellectual elites see Anglosphere values as an impediment to assimilation into a European polity. Their equivalents in Australia see them as a distraction from their country’s supposed Asian destiny. In the United States, especially under the present administration, Anglosphere identity is seen as a colonial hangover, the patrimony of dead white European males. In every English-speaking country, a multiculturalist establishment hangs back from teaching children that they are heirs to a unique political heritage.

    Consequently, in most Anglosphere states, the “principles of the Whigs before the Revolution,” are being slowly abandoned. Laws are now regularly made without parliamentary approval, taking the form of executive decrees. Taxes are levied without popular consent, as during the bank bailouts. Power is shifting from local, provincial, or state level to national capitals, and from elected representatives to standing bureaucracies. State spending has grown to a level which earlier Anglosphere populations would have regarded as a cause for popular revolt…..”

    http://www.newcriterion.com/articles.cfm/The-Anglosphere-miracle-7709#.UlBb0CDlTJE.twitter

    • rob barrattMEMBER

      Maybe it doesn’t stray all the way but needs to be brought back to equilibrium.

      “Occasionally the tree of Liberty must be watered with the blood of Patriots and Tyrants.”

      Australia brought in the random breathalyser, good you think? Well, wiser minds have stuck to the principle that a citizen in a democracy must not be put in a position where he is assumed guilty until proven innocent. Without due cause (for arresting a citizen’s progress) this is effectively what it is. It then didn’t take long for a proposal to be put to the parliament to allow the WA police to stop and search people at random. Fortunately it was narrowly defeated. The police minister stated “I’m very disappointed because I believe this legislation was brought in to save lives”. I (and a lot of other Australians) know that steroid usage in the police force has been common since at least the early 90s. What a great combination. The road to hell is always paved with good intentions…

  15. I imagine it’s much more satisfying for the old fella to heap opprobrium on a wealthy sector of the economy than it is to accept that the originally RSPT was a dog and the execution of that legislative initiative was even worse. Gittins can wave that point away all he likes, but the fact is that Labor ought to anticipated a strong reaction from the mining sector. It was Labor’s job to anticipate that and implement its policy in a way that overcame that hurdle (I’m glad that didn’t, of course, the tax was basically appropriation). Instead Rudd, and especially Swan, came out swinging with combative rhetoric denouncing the robber barons. They wanted a fight, they got one, and they lost. It’s not pretty seeing policy conducted this way in one’s country, but I blame the failures of the government to a greater extent that those of the mining sector, if only because it is fantastically naive to believe they would have ever behaved otherwise.

    It is also somewhat myopic of Gittins to argue vociferously that a large impost on a highly cyclical sector of the economy ought to be used to finance a slew of concessions elsewhere. Gittins (and apparently just for today, David as well) seems assured that this is a sustainable fiscal arrangement. Well do tell me what the budget would look like after the ‘super profits’ subside and the government has granted said concessions across the rest of the economy.

    All in all it’s an emotive speech that touches on the real problems facing our economy but it’s far too jejune for my tastes.

  16. Wow! didn’t think you had it in you Mr Gittins.
    Hat Tips are in order, along with my apologies for every foul word of uttered in the past year upon mention of your name.

    • Yes, I can sense the tide turning…. that the giant domino stated falling one by one……

      What comes next is anybody’s guess, but I am afraid it won’t be pretty….

  17. Reminds me of something I read at the end of a ginger meggs cartoon.

    Beware the vested interest masquerading as a moral principle