Australian disease spreads unchecked


Four years ago I named this blog Houses and Holes. Even then it was obvious where we were headed. I had just been run out of Business Spectator following the RSPT debacle during which I had defended the tax against the prevailing editorial line. That was a salutary lesson in Australian “leadership”. I learned that our elites are spectacularly incapable of looking beyond today, are capable of pathological self-interest, and have absolutely no idea what they are doing when it comes to the common or national interest.

It was a bowel-shaking discovery.

And so the blog was founded and took its name from the principle of chronicling (and fighting) the rise of an Australian elite intent on squandering our extraordinary good fortune.

I tell this story today not because the departure of Ford and Holden has proved my basic Dutch disease thesis right. I tell it because the calamitous failure of leadership that has led to this moment is not leaving. It remains firmly in control.

Briefly then, let us survey how we got here, before I attempt to assess where the ill-conceived plans of our betters are taking us.

Without putting too fine a point on it, the Howard Government blew the mining boom. Rather than save the most incredible economic windfall just about any economy, anywhere has ever enjoyed, it squandered the proceeds on tax cuts and middle class welfare.

As well, through much of this period, the Macfarlane-led Reserve Bank of Australia allowed a huge housing bubble to develop around the fiscal largesse. First in Sydney, and then nationally, house prices became a national obsession via conspicuously loose monetary policy (within the high structure).

When the good times ended, the Rudd Government inherited a Budget in structural deficit but also a 150 year boom in mining investment. Rather than blow the boom it exploded itself by proposing and then selling out a mining tax that was designed to prevent the boom from hollowing out the rest of the economy.

Hamstrung by political failure, the Stevens RBA turned to the currency to control the boom and pushed it to astronomical highs. It has struggled ever since to lower the dollar as other central banks have outstripped it on innovative policy amid a global currency war.

All four episodes have egged on a very elevated interest rate structure and thereby an over-valued Australian dollar.

The upshot today is we have Dutch disease. Neh, we have Australian disease. The Dutch had their illness for only a few years and their manufacturing rebounded to new highs when their commodity boom ended. Our manufacturing sector is headed for extinction as a lack of competitiveness is a decade long rubric for the economy.

So, if the history of our macro management is one of short term decisions that prove destructive over time, what can we say about our future? What if we extrapolate this myopic policy-making through the next five years of mounting challenges? Where will we be?

First, the government will brush off the departure of the car industry. It will sell the message that this was an inevitable failure, driven by Detroit, in which we had no choice and no say. It will double-down on house prices and consumption as the new sources of growth, abandoning Budget discipline as it continues to support household incomes through its own borrowing, distributed via more middle class welfare and pork-barreled infrastructure spending.

But behind this, our great post-mining boom adjustment will go on as declining terms of trade and stalled income growth emanate from a slowing China. The mining and now manufacturing  investment cliffs will subdue growth for three years and the Abbott Government’s measures will not be enough to stimulate trend growth.

Thus the RBA will keep interest rates very low and do nothing to control the rise of housing speculation. It will ignore sensible calls to emulate the Reserve Bank of New Zealand’s macroprudential tightening and watch as Sydney speculators blowoff prices at a marvelous rate. First home buyers will be collateral damage as the Australian housing market surges alongside global asset markets that are all drunk on similar liquidity.  It may even give us a little reprieve if consumers get tipsy too, though they look seriously sober today.

Meanwhile, global interest rate markets will slowly rise and eventually even the housing addled RBA will have to apply the interest rate brakes. Market anticipation  of this (which has already started) will keep the currency buoyant, perpetuating the hollowing out process that can no longer be hidden.

Because the housing boom is really only a speculative bubble, driven by low yields on other asset classes, with no real underlying demand, it will roll over quickly when interest rates rise.  As housing stalls it will expose the enduring weakness in the underlying economy as mining investment is still falling, the car industry implodes and other tradables fall away on the still overly high currency.

At this point, interest rates will fall again, even further than they did earlier in the cycle. The currency will crash and inflation surge. The Abbott Government will be faced with falling asset prices and rising inflation. Likely, it will apply a renewed first home buyers grant in a desperate gambit to keep the falling housing market aloft. It will also be at war with unions as wage claims rise with inflation. The Labor Opposition will be deeply obstructionist.

Perhaps the Abbott stimulus will succeed for another year. Then again, maybe it won’t, as it’s own Budget deficits will now be running at $50 billion per annum. With no prospect of a return to surplus over the cycle, global markets and the ratings agencies will cut Australia’s AAA rating. That will flow through to the banks funding costs, that are still supported by the sovereign. Interest rates will rise despite the RBA rate cuts as global markets force a current account adjustment onto Australia.

I do not mean this as a forecast. Our famous good fortune may bail out our leaders again. The US may recover strongly next year and cause our dollar to fall heavily. China might send a new wave of investment of such magnitude into Australian real estate  that we can trade on ghost cities for another cycle. Mars might conquer earth and declare all debts null and void.

But the departure of Holden is the writing on the wall for our current macroeconomic settings and this story is meant as a cautionary tale imploring our leadership to seriously address our competitiveness predicament now and not later. We are not innocent in this advancing fate. It is not the pre-ordained outcome of some naturally perfect market. We are electing it with our choice of macro and micro economic settings.

Australians are capable of anything, given the right signals. We’re a doughty, pragmatic and innovative people.  It’s surely better that we take control of our destiny than it is to wait upon the unintended consequences of other’s actions. We need to fight to preserve and build upon every skerrick of potential production in our economy or we really do risk a generational decline.


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


    • From a government perspective the plan is really about what happens if the economy does not deliver what is required.

      That is, if the economy delivers, then government has nothing to do. If the economy doesn’t, then the government does.

      So that means the government needs plans for higher unemployment, the provision of non-discretionary goods and services, and the management of the budget in that scenario.

      The basic setting is that you tax those that made money in the boom and redistribute into the market failure on non-discretionary, and to the unemployed.

      But you also need a work for the dole program which requires people to do manual labour the number of equivalent hours that the dole is at the legal minimum wage.

      Leaving the market to clear need, and where it doesn’t the taxing of those who made money in the boom, and the work for the dole program, are the central planks of Australian governance.

      • Turning to industry policy, the key is to ensure that the conduits of trade, that is the internet, the capacity for big ships to dock, and the capacity and price of carriage in planes of people and goods to distribution hubs like Singapore, are open.

        Then, because apart from some commodities on the supply side, we don’t have economic scale (we have scale in Arid land but because Australia is so dry and the soils old our value in farming (water and nutrients) is more as a weather hedge for more productive paddocks elsewhere in the world and so it is scale but not economic (competitive advantage) scale), so, because we need to have something to trade to buy the stuff that needs physical transporting made in places that have economic scale in the things we want, we need to produce stuff where scale is not an advantage that they want.

        One thing Australia does provide is reliability. We are relatively stable in regards earthquakes and volcanoes, we can locate facilities well away from that weather energy source the ocean so stuff wont blow over, and we don’t bear arms or fight each other, and we are well defended with our military arrangements, though we’d rather agree than shoot.

        So, policies that drove Australians demand to try new things, to buy broadly rather than narrowly.

        Government subsidy or tax treatment for particular categories of products specific to council areas?

        Bunning’s for new Australian only gadgets?

      • But you also need a work for the dole program which requires people to do manual labour the number of equivalent hours that the dole is at the legal minimum wage.

        I think two dole collectors riding a tandem could pull a cart carrying hard-working elites from their city mansion to their city office job. The elites could even spit on the dole recipients if they don’t pull hard enough.

        This scheme would also save the environment from CO2.

      • Claw, your prescription doesn’t go far enough.

        Lazy, supine, sponging, parasitic, unshaven, unwaxed dole-bludgers must also undergo thorough and lengthy training in pulling the forelock, to address their betters (everyone else) as ‘sir’ and ‘madam’ and how to genuflect. Prostration should also be considered, but risks making footpaths untidy and hard to negotiate.

        THEN we would have the culture craved by the fine upstanding leaders HnH so cruelly maligns above.

      • Claw (The), david. I knew someone that had the Work for the Dole suggestion put to them. They refuse to take part in any job search activities with their JobService Provider. So CentreLink ask them to work for the dole.

        They were asked to attend an office at Ryde (NSW) CentreLink to write an article in CentreLink’s Newsletter, every second week, for 12 weeks. They refused to do that, and they still received New-Start benefits, hilarious!

        I know a couple that run their own business, divert money in a combination of a trust and pty. ltd. Their company structure owes them a lot of money, and somehow they receive CentreLink job search benefits too. I asked why bother? They said its’ around $14K per year in passive income. Good on them I think.

        What a funny world we live in.

      • BotRot, you know this anecdote is drivel, but nice try. There are many studies demonstrating low levels of fraud among dole recipients.

        Want to end handouts? Good. Take a sharp pencil to tax expenditures. These cost taxpayers many times the cost of unemployment benefits and are one of the most disgusting forms of rent-seeking around. We could even get a tax cut if you were successful.

      • Dave, its’ called Form Mod B, if you have a company structure, or trust, or are a sole trader, and you can demonstrate structure your structure isn’t making you enough money, via that form. You can get it, its’ not that difficult. CentreLink even has a Tax Agent at some of their premises that may assess you if there are more questions that need clarifying.

        I did work for JobService provider a while back. I can tell you more stories, that aren’t drivel.

        Edit: It is not fraud is you satisfy legal requirements. Yeah, I agree with you, fraud levels maybe low.

        Think before you speak, it will do you a world of good.

      • @ BotRot – What are you dribbling on about?
        What are you actually trying to say? Or was that just a cool story?

      • But you also need a work for the dole program which requires people to do manual labour the number of equivalent hours that the dole is at the legal minimum wage.
        If that work is genuinely there to be done, then someone should be employed to do it, not required to as a sort of pseudo-slave-labour arrangement.

        If the work isn’t there to be done, then society is stepping in to support someone who has no way of earning an income so they don’t starve.

      • Yes Nick, the boy’s comments in this thread are neither worthy of a standing ovation,

        I really hope that his last comment, isn’t what attracts the boy back to this thread.

        Wait..! You’re not the same David Collyer that had something to do with the Democrats in some federal seat are you? If so, like the rest of the country, I’ll have nothing to do with you, please don’t respond, I’ll take the colostomy bag anyday.

        Dave_Comments, actually don’t.

      • BotRot, you are an avatar operated by a paid worker on behalf of a vested interest. You stink.

        HnH has posed above a survey of our national underperformance. What he says is important. Disagree with him, please. But don’t try to deflect the discussion thread to trivial issues like dole cheats. That would work like a charm in the Herald Sun, but doesn’t cut it here. I see elsewhere attempts by you to deflect substantive issues into the disutility of SUVs. For heavens sake! You seriously misjudge the collective intelligence of this forum. You try our patience as we wade through the muck you lay down. I call you on this. You persist. I offer a metaphor to describe how your efforts are perceived. You and your bonehead pal in the next carrel presume to take offence. Ha!

        Let me point out, it is not possible for an avatar to be offended, just as a fire hydrant can absorb with aplomp any insult I throw at it. Dogs urinate on it. Drunks vomit on it. Council workers manipulate it with rusty spanners and it mutely accepts – because it is a tool, an instrument, just like the avatar BotRot. Find something else to do.

  1. Bringing the current ongoing disaster to full view in the sharp light of day is a great public service. The buffoons behind this destructive idiocy are often faceless and luxuriate in anonymity. Congratulations on a great achievement.

    • +1.

      This is a tour de force in Australian economic commentary.

      More importantly, for mine, it clearly evidences a commentator who genuinely cares about the future well being of others, rather than merely seeming to care.

    • +1 An excellent article

      Yep, there is simply no excuse for this debacle. It has been standing out like dog’s balls for at least half a decade.

      Any Polly, business leader, commentator or public servant who has remained silent is complicit.

      The thing that is unbelievable is that the arrogance and denial is still foot to the floor.

      A set of stocks in a public square – with a pallet load of rotten cabbages and tomatoes is warranted.

    • +1 more.

      Certainly seem to be hitting your stride.
      Probably alot to do with the current state of affairs.
      ‘The Daily Show’ was never funnier than when Bush was in office.

  2. Bravo! I only suggest this comment “..The currency will crash and inflation surge. ..” might be the surprise package. Inflation could collapse with the dollar. Yes, import prices that the economy relies on should rise, but exploding unemployment and collapsing property prices will send the populace into their debt ridden caves. When the collapse of the economy does occur, that debt-repayment ripple we see today will turn into a tidal wave of deflationary forces.

    • There’s also a possible flip side to the AUD collapsing, as AUDUSD collapses and in nominal terms Australian property that’s been purchased with USD denominated loans becomes less valuable and therefore more collateral is required. Could be enough for some Chinese (as Dave_Comments seems adamant of) to defend AUDUSD above 0.90?

    • once it happens happens we will need a new name for the process where prices of everyday necessary products (food, petrol, clothing, …) skyrocket, while at the same time prices of other products (cars, homes, TVs, furniture …) and local services go down driven by wage colapse

    • Janet
      We are experiencing a rise in FOB prices. This has been ongoing and hidden by the higher A$ of the past few years. As China rebalances this process will be exacerbated.
      So inflation will come from a double whammy. We will have a falling A$ AND rising FOB prioces from our major supply countries. Oil prices are the other issue and I’ll leave that to wiser pundits.
      Retailers and wholesalers have been complaining of no margin for years. There’s not that much left to give up under the current structures.

      • Flawse,

        The unmentioned danger lurking in the shadows is the oil price. The globe is stuck in this low-grade economic funk and has been since 09. The Oil price has hovered around 90-100 a barrel and even so, that’s with low growth globally, a boom in “alternative oil sources”, and OPEC pumping as fast as they can. If the world can engineer some sort of miracle and get growth back on trend then the price of oil has no choice but to rise to meet rising demand. No account made for peak oil (plug that scenario in and it gets ugly )
        Richard Heinberg has a book on this called “The end of growth”. Worth a read for a different viewpoint.

      • @flawse – Soon we’ll have all those former holden employees drilling for coober pedy oil so she’ll be right mate.

  3. “I learned that our elites are spectacularly incapable of looking beyond today”,

    I don’t beg to differ on that one. Either they’re the very people looking beyond today, or they know and understand the present. Or both.

    “…are capable of pathological self-interest, and have absolutely no idea what they when it comes to the common or national interest.”


    “I had just been run out of Business Spectator following the RSPT debacle during which I had defended the tax against the prevailing editorial line.”

    You were run out cause you should not need to be told what position to take. No-one will tell you such things. The ones that keep their jobs in such a business, are the ones that instinctively know what to say, and what not.

    Who is or will suffer the most? Not the elites that can’t see beyond today. The idiots with a mortgage they may out live, a SUV that they will be paying off for a long time, 6-7 credit cards all in full operation, the same ones that constantly vote for their inferiors. Act like they have more in common with the global aristocracy than an average worker.

    The government, they vote for, represents a narrow corridor of power and privilege. Our elites are the government’s constituents. National interests is not a consideration. Take care of yourself and loved ones HnH, I don’t think this is an economic cycle, I think Australia, as the rest of the world, will have a huge, permenant under-class.

    Australians are either very forgiving or they don’t know what has been done to them.

      • I heard it from a Professor named Chomsky a long while ago. Marxists (I’m not one) seem to go on about it a lot.

    • Australians have adopted the “smart for one, dumb for all attitude” while simultaneously being bamboozled and manipulated by mainstream media.

      Smart for one, dumb for all = As long as I can get by and use the system to my advantage to get ahead and have all the stuff and services that I want/need, to hell with everybody else and the common good.

      The vast majority of Australians; blissfully unaware of how much the top 5% elite are getting away with have become status junkies and self entitlment whores.

    • Can we please stop calling these people “ELITES”

      We despise the actions and behavior of this lot yet subliminally place them on a pedestal by referring to them as such.
      They are not elites…..many have criminal tendencies, are pathological liars, and are character deficient in so many ways it’s not amusing!!!!!!!!!!

  4. The MSM have fallen into line as Gunna showed with the Keane article yesterday. They speak an incoherent line of pragmatic capitalism. It’s all brawn and no brains.

    They speak the same nonsense about realignment and not needing rusty manufacturing. Same thing was uttered in Britain years ago – its all services and finance now, that’s the future. Manufacturing can go offshore. Not policy but playing to interest groups that do well in a cycle.

    • Yeah who needs a stinking rust belt? We are a post-industrial economy that can pay ourselves the highest wages in the world for providing services to each other.

      Its a great plan as long as China money hose keeps flooding us with cash.

      • “Its a great plan as long as China money hose keeps flooding us with cash.”

        Surely this means that the more the Chinese money hose flows, aside from just buying resources, the more likely they are to end up owning stuff.
        Land, housing, apartments, ports?, other infrastructure?

        Most of our tertiary education sector would collapse without Chinese and other international students paying for their education.

        Our future landlords?

    • The UK still has some manufacturing, some of it quite high tech like Rolls Royce aerospace, it might be a shadow of it’s former self, but it’s something. Whereas it looks like there will be bugger all left here soon.

      Could the gradual loss of the highly productive manufacturing sector over recent years at least partly explain our recent poor national performance in productivity?

  5. “First, the government will brush off the departure of the car industry. It will sell the message that this was an inevitable failure, driven by Detroit, in which we had no choice and no say.”

    Well, we are fortunate to have a government / mining industry* spokesperson here who said precisely that, so we know the government’s line in advance.

    * Is there a difference?

  6. Who’s to say if the Howard government took the mining money and put it in some bank account, we’d be better off? They reduced taxes, they stopped taking as much of MY money. The people spent the money and prosperity on starting small businesses and growing the economy. The economy might be considerably smaller now if that hadn’t happened.

    Maybe you’re going to say the money went on inflating real estate. But even inflated real estate is used as collateral on starting businesses, employing people and so forth.

    Governments are remarkably bad at spending and allocating capital. It’s all very populist to say governments should have a forced saving plan where they tax your money and put it away for a national rainy day. But it’s not as easy as that. Money put away is too tempting a slush fund. Governments work best when they are aiming for balanced budget and let the economy take care of the other imbalances. Even while you can theorize that if the government did this or that it would have been better, governments are crap at such things. Let the battlers have the money and invest it for the future, not soviet style governments with 5 year plans.

    • Countach,

      That is a good point.

      Trusting our pollies to handle the capital is a lot of trust.

      Tax cuts and putting the capital (converted non renewable resources) in the hands of the public was a good idea but only if the tax and other policy settings did not encourage a ponzi asset price scheme in existing housing. Even building lots of new housing would have been better.

      Best would have been encouraging investment in income producing assets and business – especially abroad as that would have kept down the exchange rate.

      But using our capital for consumption was all we got. For that most thanks goes to Howard but Rudd and Gillard did absolutely nothing to stop the rot.

      It is now up to Joe!

      • You can only put money into new housing if the state and local governments have planning rules that allow it. They don’t, and its not really a federal issue. I suppose the feds could stick their noses into it, but even the states and local governments are already at each others throats about it, and still can’t get anywhere. Don’t blame Howard for that. If they demolished Bondi for a 50 level apartment zone, then that would be a game changer. I’m not seeing that happening.

      • To claim the Federal Govt is helpless with regard to land supply and development overlooks the fact that the Federal Govt controls the purse strings.

        Were the Federal Govt to adopt driving the development of new land as a priority, on the basis that land is a fundamental input to the economy, it would happen.

        In any event even if the Federal Govt takes the view it would do nothing to encourage efficient and flexible land supply, adopting tax and other policies (pension rules) that support decisions to over investment in property is irresponsible at the least.

        Howard cynically took the view that rising house prices would be good politically even though it caused enormous malinvestment of the windfall profits of the mining boom and borrowing from overseas.

        But for the GST, Howard proved very lazy with regard to economic reform.

        Rudd and Gillard should have taken action but policy in the public interest was always a bridge too far – especially with lil’ Wayne driving policy.

    • “..even inflated real estate is used as collateral on starting businesses, employing people and so forth.” What on earth for! Why take the commercial risk of establishing a business when the debt backing the real estate diminishes and provides the return at ‘no risk’ if property prices inflate? Taken at face value – yes – real estate can be used as collateral for business establishment. But once it starts to inflate in price, it becomes a dog-eating-its-tail cycle. The workers the business need to employ need higher wages to meet their property obligations, be they rent or mortgage payments, and so the product the fledgling business produces soon becomes price uncompetitive on a wages cost basis. It’s a fallacy that ‘inflated real estate prices’ are either good for or necessary to business creation. A good business should be backed by credit from the bank on its own merit, not risk mitigated by the bank being able to seize property is it all goes wrong. That’s another of our problems. Bankers have forgotten how to, or choose not to, asses risk…..

      • Janet, you have a notion the economy is some kind of zero sum game. For example, Silicon Valley is a hot bed of economic activity, new business creation and jobs. Why? Because there are a lot of rich guys there starting businesses. Why? Because they made a ton of money getting rich off their last business success. Where did that success come from? The previous cycle of success. Assets and success are a rich pool from which to draw a new cycle of success. And property is a very democratized pool of such success. Maybe the next Google or Apple will be someone mortgaging their Mosmon house. Probably it won’t be anything that dramatic, but people out there are having their own little success stories.

      • @countach

        You seem to think that Silicon Valley businesses get started with debt funding. I know and have worked a handful of SV business owners and similar in Oz, and none have gone anywhere near debt for funding as it’s a guaranteed receipe for failure.

        Previously-successful business owners invest money they can afford to lose without putting their families on the street.

        You’ve inadvertently touched on the big difference between AU and US and why the latter is so much more successful at commercialisation. AU policy is that businesses use debt while in the US, equity funding is the norm. Australian taxation policy (though now changed?) wrt employee share options is a case in point.

      • countach. This may well have been true when the relative debt the small business investor was risking was much smaller. But as the sums grow much larger, the risk grows with it and the number of risk takers drop as they prefer to take the safe employment treadmill to protect the primary investment of the principal residence. Ultimately the higher the initial debt point the less small business we’re going to see.

        I know HnH said that Australians are “doughty, pragmatic and innovative people”. However, I think this person he speaks of has been sucked dry by the very people that we hope to rely on to get out of a prolonged funk. Themselves. Because we don’t know how to use credit generation productively anymore.

      • nqdave, I think you’re splitting a hair that doesn’t exist. For example I know someone who sold their million dollar Strathfield house to build a motel out in the mining areas. He could have mortgaged it I guess. It’s all very much the same thing.

      • Your response, Countach, makes me want to reply to a number of points from closed loop to business innovators. But I don’t have the time as I have to go and prepare lunch for The Worker. But suffice to say, one comment I would make is that “Most business owners are property owners, but most property owners aren’t business owners”. I’m sure a Venn diagram would show some form of small circle of the former and massive circle of the latter, and therein lies the problem. For most property owners, the assets aren’t a store of wealth or past success, they are a store of debt; which at best might be in anticipation of future success/earnings. Debt has become an income earning commodity of its own. It was never intended to be so, but to part of an efficient open-loop economy. Now, where’s that lettuce…..

      • “And property is a very democratized pool of such success.”

        And large mortgage debt is an absolute entrepreneurship killer. How are you going to leave your job to start-up a business when the bank expects payments every week/fortnight/month.

    • “But even inflated real estate is used as collateral on starting businesses, employing people and so forth.”

      At least some research has shown the small business formation has been negatively affected by high house prices.

      This is a logical outcome. Fast growing businesses are rarely started by people over 50. They’re started by people in their 20’s, 30’s and 40’s, and these are the ones that either don’t have equity in property to invest or are at a life stage where, given too much debt, are less likely to take the risk of having to start again in their 40’s or 50’s if things go bad.

      This, I can speak of from experience. I started two business ventures in my 20’s. One went good, one went bad. I started again from scratch, but that was only tolerable because I didn’t have a family and $300K+ mortgage under my belt.

      • +1

        Not to mention what’s the incentive to put capital at risk and possibly fail (I have, you have, its certainly not impossible and usually required to finally get it right ha ha) when you just sit on a rising asset?

      • Well colonel Sanders started KFC at age 65.

        Anyway, there’s several fallacies here. If people in their 30s are starting fast growing businesses, at some point they need to be able to sell it to finance their next venture or next big idea. Then you need someone in their 50s to take it over, and they’ll need the money. The whole economy is integrated. Trying to micro manage agree groups, or the price of new versus old property and such things is doomed to failure.

        Yeah, in any economic environment there are winners and losers. Higher property will hurt some people, potentially hurting future business creation etc. Trying to calculate alternate universes is impossible.

        The point is, everyone saying a certain situation is fundamentally bad because of X, usually has a myopic view of things. If the free market created this situation, you need to worry about whether it would be worse if the government had stuck their nose in.

      • Why put capital at risk when you can sit on a rising asset? Assets only tend to rise when the surrounding economy is doing fantastic. That means business is doing well and putting capital at risk to expand the economy isn’t necessary.

        When the rapidly expanding economy cools, the assets don’t rise anymore. Then there is incentive to sell your now more valuable asset and invest in some new great business idea.

        Or in other words, its self correcting. Bonds versus stocks. Bond yield versus stock yield. It’s a very similar cycle.

      • Countach,

        I think Negative Gearing could be an example of “government sticking it’s nose in”

      • “..,If the free market created this situation, you need to worry about whether it would be worse if the govt had stick their noses in.. ”

        and that is the dirty great blow fly in your ointment.

        There is nothing free about the new land supply market.

        It is the mutant progeny of misguided government (all levels) policy over the last 40 years.

        Not to say that regulation is not required but that the regulation over the last 30 years has been a disaster and has caused enormous damage to the Australian economy the cost of which is becoming more apparent every day.

    • “Who’s to say if the Howard government took the mining money and put it in some bank account, we’d be better off? They reduced taxes, they stopped taking as much of MY money.”

      The problem as I see it is not that they reduced taxes (or increased middle-class welfare) per se, it’s that they took a temporary windfall and used it for permanent tax cuts and welfare increases.

      It’s very hard to cut increase people’s tax or reduce their welfare payments – hence the reason why we’re facing many years (if not decades) of budget deficits.

      • Firstly they are only permanent if the government continues with them. There is no reason other than political gutlessness to keep them permanent if it isn’t warranted. Don’t criticise an old government for rightly cutting taxes, just because a new government MIGHT be justified in raising them.

        Secondly, who’s to say what is a temporary windfall? Governments are remarkably bad at predicting the future. Even our reserve bank, maybe the best reserve bank in the world, admitted they are wrong more than 50% of the time. How much of it is temporary and how temporary it is, is very speculative.

        I suspect half of the stuff the government does, or maybe even all of it, won’t be sustainable in the long term. Short of shutting the government down to skeleton staff, nobody will listen anyway.

        And what time frame do you consider temporary? People here are crying to give Holden a handout. Will that be sustainable in 100 years when the oil runs out? 1000 years when we are all underwater from global warming? We’ve all got our own timelines, and the government’s timeline doesn’t go beyond the next election, rightly or wrongly, that’s pure fact.

      • dumb_non_economist


        For starters the tax cuts were funded by the mining boom so came out of tax revenue that should benefit future generations as well, not just today’s.

        Secondly, the predicting the future bit! You mean they didn’t realise that when coal and IO prices went through the roof it wouldn’t last, seriously?

        Howard handed out fists full of middle class welfare while denigrating low income earners and the unemployed, whilst also encouraging people to borrow and spend.

    • Congratulations on getting more of YOUR money and having YOUR property price inflate massively. How’s that working out for those who came to this planet a tad later and want to buy their own home? Hint: terribly.

      • Andy, nothing can help those coming to the planet later except creation of new land (impossible), or building bigger buildings on the land already there (possible, but its a political problem, not an economic one).

      • Australia has an amazing abundance of land (no need to create more) but I totally agree there is zero political will to utilise it. Instead all the political will is dedicated towards vote-buying e.g. tax cuts, house price inflation encouragement, middle class welfare, etc.

        Thank goodness there’s a few people outside of politics that actually have vision such as Maha Sinnathamby & his Springfield project. I’m in Melbourne but would be all ears about what Brisbane-people think of this project.

    • problem is in the fact that they lowered taxes just to encourage people to spend more by borrowing even more.

      If they instead, cut taxes and stimulated savings and productive investments we would be in much much better position

    • A sovereign wealth fund, funded by the original mining tax and printing of money if needed would have prevented the huge rise in the currency which disembowelled manufacturing.

      When the mining boom finished we would have been able to stop investing in the sovereign wealth fund and even sell it off at a substantial profit if and when the currency fell below some point where inflation started to rise.

      Others may be better placed to describe the way an Australian sovereign wealth fund should have operated and been funded.

      • If, if, if, if, if.

        If the government had increased taxes 2%, and invested it all in Apple shares, we’d all be sitting pretty.

        Except that governments are awful traders, whether it be of stocks, or interest rates, or funds, or entire nations.

        Nobody knew, and nobody still knows, what the future is of mining. My own personal view is that resources only ever get more scarce and for decades to come population is still increasing, and China and India are still developing. Anyone who thinks mining is done is taking an even shorter term view than where my dog will get its next dinner.

        Either way, tax of any kind is a brake on the economy that ripples through time into the infinite future. Such a tax might mean the economy 10 years hence would be 10% smaller than otherwise. It’s all very well with 20:20 hindsight to talk about buying low and selling high, but nobody is that clever, least of all our brain dead pollies.

      • You’re right countach.
        The real problem we had was that we have run a highly negative RAT interst rate policy while the mining boom was on. Now Howard did get ovver-generous perhaps however the notion of putting money back into the hands of the people is of itself laudable. Let the people save and invest.
        However, at negative or zero RAT rates people choose to consume. Why invest? Why save if you only lose by doing so? So we chose to consume racking up CAD’s in the face of the highest terms of trade ever and boosting consumption in the housing/retail/services area. We did not save. We did not invest in production.

        The stupidity of allowing unrestricted capital flows, particularly of the speculative kind, is astounding. I guess it now allows everybody to stand aside and say “It wasn’t my fault” It also allowed the powers who rule us to portray themselves as so wonderful because of the false prosperity that was achieved.

      • If, if, if, if, if.
        Your first post in the thread said “the economy might be considerably smaller now if that hadn’t happened.”

        You are in no position to criticise anyone for speculating.

        It might equally have been the same size but with a much more equitable distribution of wealth and without a massive property bubble.

        Either way, tax of any kind is a brake on the economy that ripples through time into the infinite future.
        Any tax that results in an overall productive outcome greater than its cost is in no way a “brake”.

        Your implicit argument that taxes can never produce a net benefit is simplistic ideological dogma.

  7. Great article. I hope most Aussies get to read it and wake the [email protected]# up at last!

    Perhaps the Abbott stimulus will succeed for another year. Then again, maybe it won’t, as it’s own Budget deficits will now be running at $50 billion per annum. With no prospect of a return to surplus over the cycle, global markets and the ratings agencies will cut Australia’s AAA rating.

    Ponzi Joe’s budget position may not be all that bad in 2 years time, ironically, thanks to Paul Keating’s and Labor’s Petroleum Resource Rent Tax :

    Coalition to axe mining tax, but petroleum will keep on giving

    Obviously this will only lead to more Howard style baby boomer speculative bludger welfare!! $50k FHOG anyone? It will take some time to play out, but this will not end well.

    • rob barrattMEMBER

      Waking the [email protected]# up has a lot to do with it. I watched Bill Shorten blaming 3 months of LNP government for the departure of yet another industry, as though GM hadn’t already been coldly adding up the figures and modelling the future for the last 3 years or more. The reason the polies get away with the “I blame the other side” debate is that the media almost never ask them the right questions, and never pull them back when they start on the blame tirade.
      As I pointed out recently, Alastair Campbell, Tony Blair’s guru spin doctor, defined every crisis in terms of the number of days it would be in the media headlines before they returned to the UK equivalent of “Mums”, ‘Diggers” and “Duchesses of Cambridge” (the new “Princess Di”). The media has the short term memory of a Sloth on Prozac, and no one knew it better than Campbell.
      While we have Uncle Rupert in charge, expect [email protected]#$ing ignorance.

      • well said Rob. Unfortunately thre Libs got themselves elected on just such a process ‘blame the other lot’! So there is no warning to the Aus people for any reform process and they did not vote the Libs in to reform in this sense.

    • Yup – it may run a little longer before it all falls over, but there will be no mei culpa from our elite, they’ll just trot out the same excuse that was used in the GFC:

      “There was no possible way for any reasonable person to foresee this event coming”

      … apart of course from the fringe commentators who are at best, ignored or more generally disparaged and ridiculed more commonly in the lead up.

      Holding those responsible to account, so they are removed from any further position of influence is critical to making sure that genuine reform is carried out, and they’re stymieing influence is removed from the system.

      I keep a long list of good articles found both here and elsewhere in order to strengthen my discussions with others elsewhere… I should probably also be keeping an even longer list of bad articles so I can discredit those same talking heads when the shit eventually hits the fan.

  8. Thanks H’n’H great article.

    Personally I’d love to be a part of a resurgence in high tech Australia, but there is absolutely no local appetite for the risk inherent in such an undertaking.

    I know the popular press credits Dr Graeme Clark with the invention of the artificial ear, which may be true in the technical sense but from my perspective the ultimate success of the venture was really the work of Paul Trainor. I know you’re all asking Paul Who?…never heard of the guy…

    In my opinion it was Paul’s monetary support and business leadership that drove the Cochlear project to a successful outcome and kept this technology within Australia.

    Paul was well off but he wasn’t rich, sure he had a nice house but it wasn’t palatial, yet he risked his own capital to form Telectronics (Heart pacemakers), Medtel (medical electronics), Ausonics (Ultrasound scanners) and Neculeus (which eventually became Cochlear). It was Paul’s dollar that kept the lights on while the research blossomed into world class products.

    Today when I talk with very wealthy Australian’s about the opportunities to rekindle what Paul started I get laughed at. I get a free lecture on Derivatives Trading, I get “help” understanding the Sydney Real-Estate market, I get offers to join a HFT group. I get advice, like your way to smart to waste your time on such a silly endeavor.

    Frankly I wish I could afford to go it alone, to reinvigorate an industry that Paul pioneered, but I know I cant. What disturbs me more is that this undertaking is not even considered a laudable goal, its just a “stupid investment” and that coming from people think Sydney RE is a fantastic growth business, @#$%ing unbelievable!

    Where are today’s Paul Trainor’s?

    • Nailed it. Welcome to the ‘services economy’ 🙂 The problem is, Aus is not well-placed to become a regional financial services centre, those all exist already. Will it find a niche managing funds from Asia? Its possible I guess, but you’d have to ask why in these times of globalisation when money managers in Asia can choose to move their funds to NYC, London, Switzerland, Singapore. What value-add to Aussie money managers offer?? Some Sydney property? 🙂

      There aint much future in just selling these services to ourselves in a market as small as Aus. At least in the UK, another ‘services’ economy (albeit with much more manufacturing than Aus also) they have the advantage of being a global fin services centre. But even there it creates an economy that will suffer mightily on the wrong side of the cycle.

      Throughout this debate in the MSM, there is talk of how Aus will move from shipping dirt to ‘providing services’ to Asias growing middle class… I have yet to hear anyone explain what these ‘services’ might actually be, and why they would be provided by Aus and not other countries. i.e. what is Aus USP which will compel Asia to source its ‘services’ from here?

      • ” I have yet to hear anyone explain”

        That’s the problem Davel. We make up a fairy tale ending then adjust our story for the ending. The story is that we don’t have to do anything. We’re great! The world loves us and that’s why they send us all this money all the time for us to live super comfortably above our means. They never want any interst or to be paid back! It’s great being an Aussie!

    • @CB Firstly I would like to sincerely thank you for your time in putting up long and inciteful posts. While I may not agree with everything you say, your posts have always made me think about my position and question it. This is one of the greatest compliments I can give anyone and I don’t do it often. So thanks CB.

      In terms of what you said, completely agree. It is a cultural thing. The silicon valley same out from a bunch of brilliant young guys taking the hard road via their parents garage.

      They succeeded because they had the talent, took the risk and put in the hard yards, not because they could leverage off of their million dollar properties (as has been suggested by a few here). They succeeded because their technical brilliance was applauded.

      We are telling our kids that you don’t need to do math, don’t need fancy degrees just join the RE bandwagon and make easy money or live off welfare.

      At a talk I attended a while back, the presenter showed two maps. The first one was of freelancer jobs originating in Oz that were being full filled from the rest of the world and the second was the reverse. These two maps will tell you all you need to know about Oz.

      His comment, if we want to keep our standard of living, we need to work on the hard stuff, the cutting edge, world beating because everything else can be outsourced and is essentially a commodity item.

      You are right CB, we need more Paul Trainor’s and more Grame Clark’s and more scientists that invented wi-fi and polymer bank notes.

      More importantly we as a collective need to realize that we need to get past the houses and holes mentality and actually start to support the creation and competitive, world leading industries.

      /end rant

      • thanks Ff,
        BTW I’m all for Australia developing a hundred Graeme Clark’s OR Martin Green’s for that matter, there is a lot of talent to be nurtured within Australia. Martin spend three decades perfecting his technical knowledge of Photovoltaic physics yet when it came to real commercialization of these ideas, the heavy lifting was all done in China.

        Surely there are some wealthy Australians that aspire to develop something other then mines and real estate, if not why not?

        Is $2B in the bank really better than $1B? especially if your only legacy is an enormous hole in the ground where once existed a valuable natural resource. I just dont get it.

      • Surely there are some wealthy Australians that aspire to develop something other then mines and real estate, if not why not?

        I think your question answers itself. The majority of them got wealthy off of RE or mining, why change.

        But the mindset of the country needs to change. Mining boom aside, engineers on average here are paid about as much as a mid level coles employee. Assuming you can get a job. Same goes for scientists ( I used to be in research and have an eng background).

        Not that this is low by global standards but relatively speaking it’s not much.

        Personally I think one of the issues is that the start up capital /costs here are so high that nothing really takes off unless you have a awesome team.

      • I agree with both you and China-Bob and have lamented the lack of capital for tech in Australia several times, but lets not be entirely pollyannaish either.

        The Silicon Valley was a spits throw away from where a pile of government money was finding its way to conduct research into avionics, space flight (JPL), atom bomb (Palo Alto) — now if only Australians government were so forward planning — and it was this concentration of bright minds and supportive capital that allowed it to blossom.

        Oracle was a DARPA project Ellison read about. SUNMicrosystems was an offshoot of Stanford University (a well known source of CIA activity), HP and Intel (note the name) were CIA fronts…

      • @migtronix

        Fair enough. However, we can still develop a tech, biotech sector here. Look at how much has been achieved without support (no minister for science?).

        Let’s look at future prospects:

        1) Oz has some of the best capability on additive manufacturing (3D printing) and nano fabrication.
        2) We have some good capability in the robotics area. Pretty much all mining related robotics work/automation has come out of Oz.
        3) On the biotech front we have mesoblast and numerous other SMEs.

        Most of these ventures don’t need copious amounts of money. Let’s put the 400M saved from the auto sector to good use.

        More importantly, let’s change our culture so that as CB and I believe Gunna has said before, we advise our kids to get into science, eng, medicine instead of RE and finance or even plumbing.

      • Thanks mig, I’ve been wanting to throw some reality around Silicon Valley all day but haven’t had time.

        There’s prob not a significant tech sector in the world that hasn’t gotten started on a government program of some sort. Total free market reliance is almost a guarantee of a false start.

        Military robotics is one sector that could fund/spawn with confidence. Au businesses are already selling robots to the yanks. Actually, most high tech industry has a military base. Only in Au do we not go there.

      • Thanks everyone for all the kind words and encouragement, maybe there still is time for Australia for shine on the high tech stage,

        Sorry I couldn’t answer everyone, I still need my sleep, got a real busy schedule today so all the best.

        Cheers Bob

    • Personally I’d love to be a part of a resurgence in high tech Australia, but there is absolutely no local appetite for the risk inherent in such an undertaking.
      Have you had any contact with the guys who founded Atlassian ? I know Scott Farquhar and he’s mentioned to me the difficulties involved in trying to fund tech startups in Oz.

    • CB there are many who want to be part of Australia that isn’t just whiteshoes and foreign banks and miners, but how do you stand against the entrenched greed of the rentiers? Against the bureaucratic and political sellouts and the army of clerks that feed of the scraps?

      Your comments are so right, there is no incentive to risk capital. The rentiers have set it up so this is exactly the case, they have good gains with no risk.

    • To fund innovation, is it legally possible to use a ‘kickstarter’ model with fund coming from superannuation? I thin the audience of Macrobusiness alone, we’ll have enough interest to fund a trial project. While the project may fail, a success can change the financial landscape of Australia.

    • Hah, nice post China-bob. Agree, by the way. Cochlear, ResMed, Atlassian. There’s a few startups starting to come out of Nicta, but I’m still sceptical at this stage if any will make it.

      Just wanted to add that I have worked with a heap of ex-Telectronics guys, some lasting at Teletronics till they went bust. Really interesting story there, but there’s a key lesson: when your product kills a few people, business gets awfully tough awfully fast.

      At least Cochlear didn’t have a life critical product!

      And, I have also toyed with joining HFT companies. There’s plenty of good engineering talent in Australia being sucked up by HFT firms, well, those that aren’t busy leaving to go to the US.

      • Gooday Boobo,
        Yea Telectronics was a heck of a company had so much to look forward to, I kinda believe the end was really more a political victory for Medtronics (competitor), the engineering failure fallout was survivable the political faceplant was deadly, great bunch of guys but I’ve lost touch with all of them.

        Yea wrt HFT over the years I’ve done some consulting on dynamic trading algorithm stability (using Middleton stability criterion) and some non-linear multivariate optimization strategies, fun stuff for geeks. I guess I could do it for a living but why? I always feel like HFT is just glorified penny theft.

      • Wanna start our own? RabbitMQ/Scala/Hadoop and Cray or 2 😉

        CB: My old boss was bioeng at Medtronics that story really is interesting

      • HFT actually isn’t all that interesting from what I hear.

        The key is all network latency, so a lot of it is high speed switches, TCP offload in FPGAs and heavy latency optimisation / engineering.

        From my understanding, companies that have traders simply have really simple buy / sell algorithms based on market depth updates with configurable parameters, traders dynamically update the parameters. The guy with the lowest latnecy (and clever trader) then wins.

        Regarding overseas, a lot of people I know have been departing to Amazon in the last few years, and a lot of them have been going for 50% pay rises, a lower cost of living and income tax in Seattle, big sign on bonuses, and large share options that vest after 5 or so years. The trade off is that Amazon is apparently a crap place to work.

      • booboo: I was offered work at AMZ and TWTR. Would rather poke my eyes with a something red hot. HFT shops in London are doing some really interesting work, and yes its all latency and continuous Finite/Boundary Element Analysis type crunching, and real trick is all marrying the flow to quant correlation analysis. Most shops use fairly simple strategies you’re right, I know because I’ve coded plenty 🙂

  9. I pretty much agree with everything in the article.

    The worst thing is that Australia’s leaders have no excuse, they can’t claim ignorance. Since 2008, they have had a real time example – in the form of US, UK etc. – of what can happen if you allow the economy to be overwhelmed by a capital inrush.

    • rob barrattMEMBER

      They are not claiming ignorance. It’s the general population who are ignorant, due either to the fact that the media keep them so, or that they don’t want to be informed and would rather read about celebrity scandals.
      The polies? Just keep yourself in power by never standing above the mean standard of debate and wait for that massive pension. In a way I can understand that, self interest is universal. Expect nothing until the tidal wave has struck, forcing people to demand more of their media and, by consequence, becoming informed. It’s a generational disaster that has to be played out.

  10. Although you should refresh your memory a bit – It is Friedman, not Marx or even Keynes, who has had the deciding influence on the world economy of the past and present century. Don’t take my word for it. Read this 2006 New York Times obituary of Friedman, entitled “The Great Liberator,” in which Lawrence Summers, chief economic advisor to President Obama, wrote: Not so long ago, we were all Keynesians. (“I am a Keynesian,” Richard Nixon famously said in 1971.) Equally, any honest Democrat will admit that we are now all Friedmanites. Mr. Friedman, who died last week at 94, never held elected office but he has had more influence on economic policy as it is practiced around the world today than any other modern figure.…/2010/10/28/are-we-all-friedmanites-now

    Rational economic something did not pan out the way the prospectus inferred. BTW for myself I would be more concerned with the the down the road realities – if TTP is passed… cough… government being sued for expected future profits extinguished by silly sovereign laws.

    skippy – your soaking in it – Calgon take me away~

    • Friedman was pretty much a Keynesian anyway. He stole Keynes’ money demand function and built his whole theory around it. He came to erroneous conclusions regarding monetary policy.

      When Summers wrote that, there hadn’t been a recession in 80 years that CB’s had not been able to ward off. Since 2006, Friedman’s theory had been comprehensively tested. The results are in, Keynes was right all along. Liquidity traps are real, velocity is wildly unstable, there is a role for fiscal policy. If you asked Summers today he would call himself an old Keynesian.

  11. mine-otour in a china shop

    I think the scenarios you lay out are very realistic. I would only add that a recession may become a depression in the final phase when the housing market correction forces taxpayers to bail out banks and LMI operations, in what was meant to be the safe and well capitalised baning sector.

    In this extra banking bail out phase the scope for fiscal policy to respond counter-cyclically will be severely weakened as public debt rises sharply and debt interest repayments eat up more of the budget expenditure, already under pressure from rising unemployment payments.

    GDP could also fall, making those debt ratio metrics (household and government) look even worse.

    The falling dollar safety valve must be activated now, albeit 3 years too late, alongside proper policy changes to support the new growth sources ahead.

  12. Great post and superbly pertinent as more of the punterariat twigs to what is unfolding and the possibility that the government they have just elected isn’t up to dealing with the issues Australia faces and is just trying to corner the options of ordinary individuals and families to extract a payoff for someone else – starting with them or their mates.

    Australian leadership is all too often feeble, and its outstanding trait is its uniformity – good leaders are rare. What we all too often see is leaders who want to craft the people they would lead (generally though an implied threat, but often through speciously plausible bullshit as well) rather than engage with them and work with them. It doesn’t really matter whether it is an SME or a large employer, the national, state or local political stage, the organisation of a local cricket club, both sides of politics, large charities, universities, unions, or the public service.

    Australian leadership doesn’t like being questioned and doesn’t like being held accountable for what it determines as being appropriate for those it leads. Sure, this is a culture common amongst second rate organisations the world over, but what really makes Australia distinctive is the resistance organisations have to considering originality in any shape from within or without and engaging with it, exploring it conceptually and pragmatically, let alone applying it, and the expectation that Australian subordinates (particularly in larger workplaces, but it is also noticeable at a national decisionmaking level) will just shut up and not make waves, and the default setting, when waves do occur, to blame the lowest underlings, rather than to identify issues develop responses and to lead towards a goal.

    That ethos in many organisations is bound in place and typified at many organisations by performance appraisal systems which incorporate behaviours (I personally have introduced these at organisations – how many people have bullshit in their appraisal systems such as ‘risk engagement’, ‘thinking beyond the square’ [often where any original thinking would be intolerable] ‘commitment to team and leadership ethos’ ‘team player’ etc which are basically there to bully people into conforming behaviours one way or another and to provide tools for them to be managed with them?), how many contractual relationships have non-disclosure provisions which go miles beyond any real non-disclosure need. And, from that point, in how many organisations or groups of organisations does ‘success’ in the organisation revolve around getting into a ‘club’ [the leadership team, stream and it ‘ethos’] and gravitating higher through inculcating, and promulgating where necessary, ever more grotesque forms of ‘leadership ethos’ which all too often involves bullshitting the lower level punting types, bullshitting clients, bullshitting the public, and bullshitting just about anyone and everything – and recoiling (usually sharply) at anything which may imply criticism, let alone an outright questioning of anything? A similar phenomena will see organisations recruit only those into the organisation who are identified as having a sensitive pressure point (they need a job, need to service a mortgage/debt/family, are overtly ambitious to succeed inside an organisation and will exhibit appropriate management behaviours) and a disinclination to recruit those who don’t know matter what their skills.

    Most management likes to keep a tight rein on information flow inside an organisation and if we look at a national discourse and political level we see basically the same phenomena there. Our mainstream media (the cash strapped commercial TV channels, a range of magazines, the league of Uncle Rupert or the chenille world of Fairfax) runs long on promoting an orthodoxy (an anodyne get out there and buy and don’t ask questions culture), triggering the right behaviours (oi, oi, oi, mate) and identifying those outside the orthodoxy (single mothers, academics who can’t answer complex questions with a sound grab – indeed anyone coming across as educated without being blokey enough to offset it – asylum seekers, aboriginals etc) beyond performing that function the media has basically evolved to a point where it writes opinion for itself –cf the Canberra press gallery and its spectacular ability to completely miss what the rest of the country is experiencing, the Sydney set which runs the ABC, the Fairfax mainstay of property spruiking no matter how long and hard the spruik must be, and Uncle Rupert’s pernicious gargoyldom. As a general rule Australians are far better off plugging in to international media to get a macro picture of what is shaping their world, and couldn’t rely on its domestic media to report anything happening here without subordinating what is happening to an agenda.

    This effectively means that our leaders (who may have better sources of information [though they wouldn’t share them with us]) only engage with us to an agenda, and of course only engage with us one way [they say – we listen]. The distance (still) and the size of the Australian market means that there is little in it for international media to be particularly detailed in looking at Australia, so it functions at a national level in much the same way as any larger organisation’s internal communications process works – a sort of cross between HR and operations/corporate services, with a strong suit in distracting trivia, an habitual leaning toward cheap hagiography of irrelevancies which don’t threaten the management line, and genuine silence on big issues or on any line that management deems not on its side.

    As HnH has experienced the effect of this is most pernicious at the nexus between the media and economic/business reporting, and fairly obviously his experience represents an individual with an informed view being treated as a chattel by management when his message wasn’t part of their song. The same phenomena would explain the regular commentary on economic issues by a lot of people who manifestly don’t have all that much idea of what they are on about (utter irrelevancies writing for Uncle Rupert on Holden workplace agreements or Bernard Keane’s recent piece on the impact of a Holden departure being good examples), and, more disturbingly, a lot of the utter bullshit being tossed into the public domain by people who certainly do know what they are on about (eg much of the stuff being tossed up by Ross Gittins or the Pascoemeter over the last 18 months in the lead up to their recent conversions to the enormity of the economic task ahead of Australia). This state of affairs serves interests, and like in companies where ‘restructuring’ is to occur, is invariably used as a tool for protecting some interests at the expense of others. In essence, it is a form of power.

    Australia’s ‘disease’ this time around stems largely from the decision to crush the exporting and import competing sectors of the economy through a strong AUD in order to fit in the investment phase of a mining boom, and part of that disease is the information management process articulating the advantages and disadvantages of that decision. Nobody has ever come out to lay claim to that, and it has never been explicitly discussed in the mainstream media, at least until far past the point where it was being presented as a fait accompli. A similar approach is invariably used with many Free Trade Agreements which sell out local interests (who invariably don’t get all that much media/information coverage) in favour of international interests – usually balanced out against a Potemkin press release of gains which are generally fairly marginal for ordinary people should they care to think about it (but from which they are dissuaded by a wall of business interest touting gains). In the same way nobody has ever conceptually rounded out why it is that we need to feed housing speculators to sustain aggregate demand through housing construction and the implications of doing this – its been fed to us piecemeal with the upside neon lit from rooftops and the downside unacknowledged (just don’t ask about future first home buyers, let alone whether they will service stupidly large mortgages in globally uncompetitive workplaces for inordinately long periods). And then there is immigration in much the same category – its big and it needs to be big, but we can’t ask why or to what purpose, or even how it can best be accommodated.

    The problem with this approach, the same as the problem with inward focussed management is that what Don Rumsfeld would call ‘unknown unknowns’ are known not only in the wider marketplace (could we sell Australian assets at what we thought a good price but which the rest of the world thought cheap?) but also known, or suspected, by a large number of the underlings (think ordinary everyday Australians wondering about their electricity bills, job security, or hoping to buy a house in inner Sydney) who begin to question management’s approach, if not actively work against it. At a workplace level this condition presents as significant absenteeism, a lot of presenteeism (here but not doing much), and increasing levels of detachment. At a national level it presents as increasing disenchantment with the entire political process, and a brooding wait for the opportunity to give that disenchantment substance. And the disenchantment itself begins to deter effective long term policy making in favour of short term fixes for popularity, which may echo increasingly loudly with those who’s approval is being sought, and those seeking it, but has an increasingly myopic effect on the ‘known knowns’ world – the French refer to it as nombrillisme. In this environment conceptual trains of thought which would point to some outcomes being fairly logical start to become observed more for those who win or lose in the process, and for those factors which can or can’t be openly acknowledged (for the implications they carry for the wider entity).

    Australia is here. Like organisations/companies/bureaucracies which cant openly say that a long serving manager is past his time or stovepiping in the organisation has made it inefficient, or that the end outcome of market testing/commercialization will be the evolution of the organisation without what has hitherto been key parts, the departure of Australian manufacturing gives rise to a number of major questions and issues, which our political and business leaders cant acknowledge without acknowledging some unpleasant truths. Without acknowledging the truths they can’t plan for a future which is closing in all too quickly.

    • Most of the business media (especially Gittins) have just regurgitated the Treasury line. And the Treasury line has been appalling. It hasn’t even been consistent.

    • Very good. The lack of management and leadership capability in Aus must play a part in the type of economy we are creating here (not a good one).

      Its quite difficult to identify the causal relationships though, you’ve had a good crack at it.

      Personally I see a business culture which is very cliquey, good at selling, can bully/cajole a bit, but has little of substance intellectually or emotionally underneath.

    • rob barrattMEMBER

      Cogently put, and all the more admirable for being done without the use of the words Abbott, Gillard, ALP, LNP etc. One topic in particular, how many times have I looked from the inside (as a contract business analyst or consultant dogsbody) at a company I’ve been contracted to work at and longed to scream out at the culture, the PC mentality, the need to belong to a faction in order to advance..

    • Gunna we had no option other than to run with the mining investment boom. It was the boom, the record ToT, the export bonanza, the growth in national income etc that saved us from the economic malaise endured for the past years by non resource nations.

      Fears now arise that as the investment phase winds down there is little to substitute – ideally demand from China will hold up resource exports (ToT) giving some breathing space (and of course the investment phase itself has given rise to the production export capability – all good).

      What happens a next is anyone’s guess. But it is wrong to decry the resource boom as leading to our current challenges when the boom, if nothing else, staved off what some see as the inevitable.

      Take away our natural resource abundance and what do we have?

      • You are a part of the pernicious inward look old coq.

        Your job is to cultivate the impression that there could be no other way, that euthenasing any and every other sector of the economy is ‘inevitable’ or imposes net costs on the economy as a whole – except for relationships of convenience (the FIRE world) and generally spruiking the hagiography of nothingness rather than the open address of issues.

        You are part of the problem, and the mining world may well be Australia’s most effective global competitor and current bulwark, but we have both been around long enough to know it spends long periods face down in the mud between booms, and that stripping an economy (particularly one importing people at the rate of 300K per year and with the global competitive position of Australia) so that the mining sector is all we have is nothing short of insane and selling out our future for our present.

      • Put simply, mining should have been taxed and at the same time policies enacted to drive down wage costs, and the AUD.

        If miners didnt like this, they could invest less and the resources could remain in the ground to be extracted later.

        A smaller boom, money to reallocate to other productive enterprise, labour available at lower cost to other businesses, a reasonable AUD.

        That the politicians failed to achieve this was a monumental failure. They listened to one set of business interests disproportionately.

      • Whoa.

        You fail to explain just how we could’ve done things different. As Flawse reminds where we are now has been decades in the making. I’ll add to that the globalisation has irrevocably transformed the economic/manufacturing/industrial landscape and ensures simplistic fixes or return to some imagined halcyon day relegated to the ‘not gunna happen’ pile.

        We were and continue to be bloody fortunate we have a resource base – sure it is subject to cyclical volatility – but it is our only point of differentiation from a bunch of middling economies. What we do with this beneficence it up to us (and generally not well managed) and certainly not the responsibility (nor fault) of the resource sector.

        The resource sector puts in place the investment necessary to generate income and exports (with all associated risks) and continual sniping directed toward the sector gets us nowhere.

        Just be thankful 😉

      • I think I remember those debates. He’s got the cart before the horse. The SWF would have narrowed the CAD by adding to national saving.

        The mining industry stepped over the line in opposing a SWF. Who ever said it would be funded with new mining taxes? Its one thing to whinge about taxes. It’s another thing to mess with the macro settings of the country. In any case, Corden concluded that a mining tax would probably have led to a real exchange rate appreciation. The two were never linked.

        Ideally the SWF would have been funded by budget surpluses, themselves driven by restrained expenditure.
        The choice was between a SWF allowing the country to spend the boom over time.
        Or handouts to households combined with real appreciation allowing a household spending bonanza all at once.

        The issue was deliberately confused by a whole heap of irrelevant distractions, and in the end we got the latter.

      • @3d1k I agree with you that we should be glad that we have mining but I think it has made us complacent. One word – Nauru. While I was growing up, Nauru was going through a big phosphate export boom.

        The natives that visited us (different pacific island) made the mining bogans of today look like riff raff. They were known to tip AU100 commonly (this was the early to mid 90s).

        While their government invested some of the money into the future of the nation, most of the money was squandered.

        Now all the phosphate is gone and they can’t even plant any crops.

        if you save in times of plenty, you don’t have to suffer through the droughts. There are many ways in which the pressures of the mining boom could have been mitigated and the rest of the economy made stronger. While we postponed the GFC malaise, we have now got much further to fall.

      • @Gunna: Thanks for the lengthy and considered piece and the response to 3d1k above.

        I’m certain that the mining boom “saved us from economic malaise” (as it were) but that’s like saying the morphine helped us alleviate the pain and because we have plenty of morphine and few surgeons lets keep dosing up with morphine and stay happy instead of investing in educating/attracting more surgeons!
        The longer we live in morphine economy the worst the withdrawls will be when the price of smack goes through the roof for us (AUD plummets)

      • Aj – great response – lol. That wasn’t a response that was just a routine swipe against the sector.

        Sorry dudes no point waving the magic wand Abracadabra!! You work with the realities and implement change where appropriate and possible. Opening avenues for discussion is of course a great start. Resorting to criticism and/or unfounded blame merely polarises.

        Post GFC the only option other than economic pain (yes I know many look forward to this and the boom may have simply postponed it) was embrace it. Circumstances may be different now requiring a different response.

        Blaming the boom misses the point.

      • 3d1k: man it’s lame to throw around the accusation of ignoring debate or its evolution when you yourself so regularly proceed with muddying the waters via homilies or misdirection.
        The day you mention a solution such as instead of royalties the mining corps pay an innovation tax (yes I know flawse I don’t want the govt picking winners and losses either) or that a percentage of their Australian operations must spend X in research and development re: the cleaning of tailings waste etc. But no its just more misdirection and don’t blame me. And dude I’ve come out swinging on your side plenty!

      • GunnamattaMEMBER

        Crack dealer to addict [translated]……..

        Sorry dudes no point waving the magic wand Abracadabra!! You work with the realities and implement change where appropriate and possible.

        You aren’t allowed to think about giving up your crack until you have no money, and even then we can extend credit for quite some time to clients in good standing. Giving up crack will be painful and should only be done under strict medical supervision. You know if you go anywhere you normally go you are going to want a hit, and you know that the only way to really kick it is to go cold turkey, which will be an immense trauma for you and all the people around you. But a hit right now would be quite good wouldn’t it?

        Opening avenues for discussion is of course a great start.

        Talking about the idea of kicking your crack habit is all very fine on a conceptual basis, however. As long as you don’t do anything precipitate and it is all talk. Would you like a hit now to help that along?

        Resorting to criticism and/or unfounded blame merely polarises.

        There is no point in blaming the crack or my dealing service for your predicament. Thinking about having potentially declined crack that first time you took it, or potentially having had less at numerous points during the duration of your addiction is simply silly now, and apportioning lame is only getting in the way of addressing the addiction you certainly have. You may find that your ability to think clearly will be helped along by a quick hit.

        Post GFC the only option other than economic pain (yes I know many look forward to this and the boom may have simply postponed it) was embrace it. Circumstances may be different now requiring a different response.

        After that initial binge the only way off your addiction was considerable pain, but basically you weren’t strong enough to cope with that and having more has helped you get to the stage you are at now. It may be conceivably be possible for you to kick the habit now, indeed you may have to if you really don’t can’t get the readies to fund your addiction.

        Blaming the boom misses the point.

        There is no point in thinking about other things you may have done with your money other than snort crack. It wasn’t the crack or me, it was you. And it was good, wasn’t it. Would you like another quick hit before I go. I know you’re good for it……..

      • You still miss the point. It wasn’t the boom per se (that’s been brilliant) it was how it was managed, how consecutive governments dealt with the windfall gains, encouraged appropriate policy to engender growth in other sectors, ensured sustainable expenditure programmes into the future and to have open bipartisan discussion with the Australian electorate.

        The resource sector played its role very nicely thank you. Build plant, extract minerals and export to the world.

      • 3d1k: The resource sector worked too damn well!!!
        They had enough in the bank to play politics to their advantage and our collective detriment – despite what you claim.
        These Alan Bonds will be shown for exactly what they are and it sure as heck isn’t the saviours of Australian economy or culture!

        You’re missing the point 3d1k, Perth is a perfect example of the sedation and conservatism that comes with exploiting a landscape for so long.

      • @3d1k

        It wasn’t the boom per se (that’s been brilliant) it was how it was managed, how consecutive governments dealt with the windfall gains, encouraged appropriate policy to engender growth in other sectors, ensured sustainable expenditure programmes into the future and to have open bipartisan discussion with the Australian electorate.

        For once, I agree with you. However they don’t get off scott free. The MSM manipulation and “vote buying” can’t be excused as exemplified by the RSPT debacle…

      • 3d – Gunna is right, you are a shill, you are paid to represent the interests of the owners (mostly foreign) of the mining industry. Lets be clear about that you don’t represent the mining industry you represent the owners of the mining industry, your job is to deliberately obfuscate, straw man and otherwise disrupt any discussion that looks critically at the self interest of the owners of the mining industry.

        Yes mate – you are definitely part of the problem.

    • Thanks Gunna! It doesn’t make me feel any better.
      The ‘Black Hole’ is upon us one form and the other.

    • @Gunna

      You’ve painted a pretty good picture of the corporate Australia I know. It’s strangely ironic that corporate culture in this country more closely resembles the power structure of North Korea (comform or be silenced) than the supposed free market that they outwardly worship. I’ve worked for several top tier corporates that have a zero tolerance for dissent, fools with little talent climb the ladder by parroting the current buzzwords and vacant analogies, and any genuine meritocracy is steam-rolled by cliques and personal alliances. Madness. No wonder productivity is down the tubes (and innovation and risk-taking non existent).

      • +1. We all see the same mess. For mine the reason for this is solely the oligopoly nature of Australian business. It is no longer there to compete for work it is there to lobby for more protection and more rent – good workers are incidental to the model.

  13. I think the “slow melt” scenario on housing has evaporated. The most likely future is for a calamitous reset on the real estate market at some near future point.

    The most likely forecast cases are:

    a) A full blown recession with high and rising unemployment, deflationary cpi.

    b) Tepid economic growth with sharply rising interest rates.

    Since high interest rates and high unemployment would seem mutually exclusive for anything more than a very short time window, we have to consider which scenario will cause the most impact on the property market.

    My feeling is that there are 3 classes of property owner in Australia,
    1. Owner occupiers with NO mortgage
    2. Owner occupiers with a mortgage
    3. Investment property owners.

    Class 1. are largely immune from economic influences
    Class 2. are exposed to scenario a) far more than scenario b)
    Class 3. are very sensitive to scenario b)

    So it seems to me that while a recession may have some impact, to the extent it forces unemployed mortgage owners to sell, i think those properties will simply be hoovered up by investors and foreign buyers.

    The more devastating impact will come when interest rates rise, thus presenting more attractive investment options for the investor classes.

    My question is what will be the vector for this?
    Its hard to see any circumstances where the RBA becomes hawkish on rates.
    Even in a currency collapse surely the RBA would look through the cpi spike in imports.

    • Joneses
      The question is can we fund ourselves. We can talk about where we would LIKE interest rates to be. We can keep selling mines and farmland. Lord knows there is stuff all industrial capacity left to sell. Low rates will require us to keep selling assets to foreigners to fund ourselves. So if we don’t sell resources the best thing would be to sell real estate. However this then drives the experience where our own people cannot afford to own homes in their own country.

      Bloody hell! There really is no way out of this. The answers do lie back in time.

  14. “Briefly then, let us survey how we got here, before I attempt to assess where the ill-conceived plans of our betters are taking us.”
    These “betters” as you call them may have a larger bank account, be higher educated, and have the “right” connections…however….I fail to see how a deficit in critical thinking, moral standards, ethical behaviour, community values, and national pride place them as our “betters”! Sorry HnH, but I have trouble swallowing that.
    I applaud your efforts and stand ready to help in any way I can to turn this ship around though.

    • “I fail to see how a deficit in critical thinking, moral standards, ethical behaviour, community values, and national pride place them as our “betters””

      Thanks IP! That IS getting down to what really is the essential problem here.
      Howerver it isn’t only the ‘betters’! With apologies to Pogo ‘The problem is us’

      • Yes the problem is “us” but we are knee-capping ourselves by allowing our internal dialogue to be contorted. Until we can look these clowns in the eye and see them as not better..or elite…then we will continue to be placed in the same situations that we are now in.

      • Yes agree IP. It’s why I’ve opined we have our differences in this place but at least we all give a stuff!
        I certainly didn’t mean to be divisive here. By ‘us’ i meant the Aus population generally. We all want more than we can afford. Some get a whole lot more than they are worth!

      • interested party

        “I certainly didn’t mean to be divisive here.”

        Mate, the problem would be mine if I took some offense. I value your comments as well as many others here so never apologize to me……….if I get offended then maybe my angle is wrong.

  15. Henry’s research

    “shows that at least £13tn [$21 trillion] – perhaps up to £20tn [$31 trillion] – has leaked out of scores of countries into secretive jurisdictions such as Switzerland and the Cayman Islands with the help of private banks, which vie to attract the assets of so-called high net-worth individuals. Their wealth is, as Henry puts it, “protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy“. According to Henry’s research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4tn [$6.2 trillion] in 2010, a sharp rise from £1.5tn five years earlier.”

    It blows me away that everyone is still trotting out the productivity – globalization – corporate person hood – attractiveness meme in light of the endemic fraud over the last few decades and on going.

    skippy… should Australia start wearing even a shorter skirt?

    BTW why would anyone quote Donald Rumsfeld

  16. HnH.. Here is some history which may enlighten you to the current events and the future
    Some years ago in the Pilbara a local Labor politician was wooing the community of Noonkanbah station, and it looked like their vote would defeat the local Liberal Member

    A couple of days before the election, the Liberal guy sent a couple of 44s of rough red from Margaret River to the community as a gift. Of course the community became so pissed they couldn’t vote and the Liberal guy was elected. Had the locals resisted the temptation, even for a couple of days the outcome would have been reversed.

    Over the years the elite have witnessed the rise of the lower class. Past methods of suppression of this mob were frowned upon, so it was, has been, decided to give the lower classes the opportunity to partake of the befits of the wealthy, access to capital, (knowing full well the undisciplined, un educated did not have the responsibility to manage the opportunity)
    The upside for the aristocracy has been the massive increase of equity in the system and the unequaled opportunity to clip the ticket, via interest charges. Had the many, better managed this opportunity to access capital, they wouldn’t be in such a position now. To manage opportunity you need responsibility. Understand this and you will realise why the elite are firmly in control.WW

      • Mining BoganMEMBER

        Love it? They defend their servitude with a passion that goes beyond love.

        Greed is the overpowering emotion in this country.

    • “The upside for the aristocracy has been the massive increase of equity in the system and the unequaled opportunity to clip the ticket, via interest charges.”

      As flawse always says, the answers lie back in time.

      About 500 years, to be precise.

      Ban the “aristocracy’s” core incentive for creating “massive increase of equity” in order to “clip the ticket” — ie, BAN USURY — and the problem is solved.

      • dumb_non_economist


        I remember Nookanbah Station and the huge protest that went with it, my comment though was about the red wine. I couldn’t get through 50 odd pages of Hansard so if they are somehow connected I’m sorry!

        Here’s a C&P from an Obit for Ernie Bridge by Tom Stephens, with the link below.

        Meanwhile, at that same election of February 1980, people associated with and supported by the local Liberal party, had – on election eve – taken a 44 gallon drum of port wine, supplied by Hotel Kununurra, and delivered it to the Warmun Community at Turkey Creek in an attempt to get the voters too vote to drunk at that election. The perpetrators, including local bull catcher Steve Waddell, were caught in the act of distributing the wine around what were then just the rudimentary campsites at Turkey Creek; the Gidja people of what is now the Warmun Community….

  17. Strange Economics

    As I drive in my FBT rort sponsored Mercedes convertible, from my tax free mansion, to collect the rent from my negative geared flats inhabited by failed FHBs I priced out, then on to deduct my tax free super, I worry that my govt subsidized private school kids may be missing out on the cheap overseas trips due to the high dollar. Luckily I work for a govt supported industry (the banks) and don’t have to worry. I am offended that despite my $ 40k per year of govt benefits, that some of my apartment dwellers may receive a small govt benefit which they will waste ! The govt must cut costs.

  18. ReformedEconomist

    Ii’d say it’s mostly the tax cuts rather than ‘middle class welfare’. Pension increases and easier means testing certainly. ALP did a little to cut back the middle class welfare. eg. means tested FTB part B and froze certain income limits for welfare payments. eg baby bonus, FTB A.

    • Mining BoganMEMBER


      There should be a cutoff point for them. Once you have an amount in your super that would give you in retirement saaaayyyy…minimum wage plus 25% …then concessions should stop.

      After all, super was supposedly brought in to replace the pension. It shouldn’t have rewards beyond that to what it is now.

    • As I had stated before, this is not simply the matter of economics or even politics. It is a deep-rooted cultural issue that cannot be easily overcome.

      The oligopoly / mateship culture is not only the matter of businesses. Perhaps the most acute case can be seen at the state government level. There is no reason why the states should not compete against each other over population and capital. The states that find themselves in the wrong lane of the multi-speed economy should come up with inventive measures to kick start their economy. But instead, they just preserve the uncompetitive structure and try to suck the federal teat.

  19. I mean seriously, with regard to automobile manufacturing ! Aust, is never going to compete here ! America cant compete, despite cheaper labour and currency (compared to a decade ago). However, they can support an industry because they are a LARGE economy, so they have enough internal demand to support the industry, in the US tariffs aren’t an own goal !

    Have you heard of “comparative advantage”, international economics 101. Well making cars isn’t ours. Feeding people grains and creating an industry around upscaling food could be. Leveraging research and manufacturing in the pharma sector could be, as its relatively capital intensive. Technology, mining, design, leisure, tourism, livestock, ecomaterials, ship building, engineering are other industries Australia is relatively good at.

    Make no mistake Australia has a lot of advantages being a small country and should be nimble in producing or designing things the world wants and where we have a relative advantage, either via raw materials, technology, innovation or capital intensiveness.

    We have a huge Asian market place which has gotten a lot wealthy, this is a large opportunity.

    Wasting tax payer money on Holden and Ford cars indefinitely is ridiculous. No one is buying their cars here. They are crap compared to the alternatives. It begs the question; what have they done with the tax payers money? They werent building better cars, so maybe they were here because they were playing our government for a fool. Who knows, maybe they were R&Ding here for other markets.

    Holden and its parent GM is a broken, old relic and should be put on the heap.

    Hopefully the government can put all that subsidy money to good use by retraining the workforce, and perhaps the governemt will get a better dividend on that investment.