David Uren butchers the population ponzi

By Leith van Onselen

The Australian’s David Uren wrote another one-eyed article yesterday in support of high immigration, in which he espoused a bunch of so-called economic positives without giving due regard to the negative consequences:

During Howard’s second and third terms, he oversaw a huge expansion of Australia’s migration program based on permanent and temporary entry. Increasingly temporary and student entry became the main paths to permanent migration…

It may be true that a temporary foreign worker takes a job that otherwise may have gone to a local — even to a union member — but that foreign worker creates demand, which generates more employment. They need to be housed, fed and supplied with the countless consumer goods and services that keep the economy turning. Numerous economic studies, including by the Productivity Commission, have shown migration programs create at least as many jobs as they displace…

During the global financial crisis, unions called on the Rudd government to cancel the temporary migration program, but it continued at an elevated rate, as did the overall migration program through 2009, reaching a record 310,000 people in that year…

Australia had quite a steep recession in per-capita terms — output per person fell by 2.4 per cent.

However, a retailer who is selling less to every customer will not lay off staff if more people are coming through the door.

The influx of migration stopped unemployment rising higher and a genuine recession…

This elasticity in the labour force — with the size of the temporary workforce ebbing and flowing according to labour demand — helped Australia to get through the unprecedented terms of trade boom without inflation, saw it sail through the GFC without recession and is helping it to adjust now to a slowdown in the economy that in earlier times would have seen unemployment rise far higher.

Let’s dissect Uren’s arguments one-by-one.

First, the claim that “foreign worker creates demand, which generates more employment. They need to be housed, fed and supplied with the countless consumer goods and services that keep the economy turning”?

It is true that growing the population is an easy way for businesses to sell more goods and services. Immigration also gives businesses access to lower cost workers. And there’s less need to become more efficient when your customer base is growing inexorably. Rather, just sit back and watch the profits flow.

Take, for example, Australia’s banks, which get the double bonus of not just having more consumers to sell debt to, but also extra demand for housing, which helps to support house prices and their loan collateral, especially given the urban consolidation policies operated by Australia’s states.

But what is completely missing from Uren’s analysis is that while the big end of town is a clear winner from rapid population growth, it doesn’t wear any of the costs. That is borne by everyone else.

It is you and I that will be forced to spend more time in traffic jams as Australia’s infrastructure – already straining after a decade of rampant immigration – fails to keep up with population growth.

It is you and I that will be called upon to pay for expensive new infrastructure (e.g. roads, rail and desalination plants) in a futile bid support the rapidly growing population.

It is our children that will be required to live in smaller and more expensive housing, often further away from the CBD, as more people flood into our major capital cities.

And it is our children that will be called upon to once again ramp-up the immigration intake once the current batch of migrants grows old and needs support – the very definition of a ponzi scheme.

Where is the acknowledgement of these costs from Uren, or the admission that rapid immigration can actually lower productivity by diverting investment away from productive areas (see my previous post)?

Uren also seems to believe that the extra spending on imported goods and further blowing-out the current account deficit is somehow good for the economy.

Next, there’s Uren’s claim that:

During the global financial crisis… Australia had quite a steep recession in per-capita terms — output per person fell by 2.4 per cent.

However, a retailer who is selling less to every customer will not lay off staff if more people are coming through the door.

The influx of migration stopped unemployment rising higher and a genuine recession.

The extra migrants may have boosted demand, but they also boosted labour supply, so their impact on overall unemployment is highly debatable. Indeed, the RBA last week acknowledged that falling immigration has held the unemployment rate down. So how does it follow that lifting immigration during the GFC also lowered unemployment?

At least Uren has acknowledged that Australia did in fact experience a recession in per capita terms during the GFC. In fact, per capita growth has been trending down strongly:

ScreenHunter_8027 Jun. 30 08.43

And the main thing supporting headline GDP growth is high immigration.

Indeed, since the GFC, 70% of Australia’s growth in headline GDP has come from growing the population, rather than improved productivity:

ScreenHunter_8026 Jun. 30 08.40

Effectively Australia’s high immigration program has maintained the illusion of growth. But what is the point of growing the economic pie if everyone’s share of that pie is not increasing sufficiently?

Finally, what do we make of Uren’s claim that:

This elasticity in the labour force — with the size of the temporary workforce ebbing and flowing according to labour demand — helped Australia to get through the unprecedented terms of trade boom without inflation, saw it sail through the GFC without recession and is helping it to adjust now to a slowdown in the economy that in earlier times would have seen unemployment rise far higher.

“Helped Australia to get through the unprecedented terms of trade boom without inflation”. Nope.

When infrastructure and housing investment fails to keep up with population growth, it places upward pressure on inflation, requiring higher interest rates, which can then damage productive sectors of the economy. As explained in a 2011 speech by the Reserve Bank of Australia’s Phil Lowe (summarised here), these factors were certainly in play in the late-2000s, when rapid population growth placed upward pressure on rents, as well as caused a big surge in utilities prices as the capacity of the system struggled to keep pace with the growing demand, requiring costly new investments.

“Saw it sail through the GFC without recession”. Not in per capita terms, which is what matters to the average Australian.

Is helping it to adjust now to a slowdown in the economy that in earlier times would have seen unemployment rise far higher”. Absolutely, which is exactly what lower immigration does. So why did you claim earlier that “the influx of migration stopped unemployment rising” during the GFC? You have contradicted yourself, Mr Uren.

While not mentioned by Uren, I will also add once again that Australia earns its way in the world mainly by selling its fixed mineral resources (e.g. iron ore, coal, natural gas, and gold). More people means less resources per capita. A growing population also means that we must deplete our mineral resources faster, just to maintain a constant standard of living.

It’s about time that Australia’s economists and policy makers acknowledged that high immigration is not an economic bonanza, and is in fact more likely to damage productivity and living standards. Ross Gittins has done so, as has the The Australia Institute’s chief economist, Richard Denniss.

If all Australia is doing is growing for growth’s sake, pushing against infrastructure bottlenecks, diluting our fixed endowment of minerals resources, and failing to raise the living standards of the existing population, where is the benefit?

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Unconventional Economist
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  1. Yesterday it took me an hour to drive 15km across the suburbs and I was never close to the city. That bloke is a FW. Overflowing hospitals, schools, etc, etc. However, it won’t last, we all know how ponzis end.

    • yeah we know what is going to happen when our ponzi end …, most of temporary and even many of permanent immigrants (most of them citizens by now) will run form huge debt they are not going to be able to repay, leaving the rest of us and our children bill to pay.

      I met a young (27yo) immigrant (came as temporary now permanent) on a function last year … during 10min casual talk he mentioned his house twice, his IP a dozen times and his X5 in almost every sentence, … on my question if he is afraid of a property crash, he said “I came to this country with almost nothing, I can always leave with that much”

      • Add on top of that , the fact that most young people will leave the country too for better opportunities somewhere else. That behaviour you mention above is not specific to migrants from my experience. It’s even worse for born and bred aussies.
        Even the most reasonable people these days don’t seem to have a clue about money management…

      • “born and bred aussies” don’t have a option to hide from creditors in some country without extradition agreement with Australia or citizenship of a country that doesn’t extradite its citizens.

      • Should also be noted that where a criminal act is suspected, the lack of an extradition treaty doesn’t mean you can’t be extradited – it just means that the country trying to get you back has to do some more work, so they have to want it a bit more.

        But show up representing someone we haven’t signed one of these treaties with, with an unimpeachable case that some person living here has done something awful, or maybe just nicked something, and promise not to torture or execute them, and we’ll send them back – why on earth would we want to keep them?

      • @ Lord,

        Legal actions are highly depended on the amount. The real problem for “born and bred aussies” is the fact that they will not be able to visit australia long after they leave. Immigrant on the other hand have much less issue with that

  2. I’m thinking a positive from the coming economic downturn might be that people will simply stop coming our way and hence slowing down the ponzi.

  3. In 2013

    Australia constructed 97,898 Homes
    California constructed 94,993 Homes
    Houston constructed 95,037 Homes

    • Are you sure those figures are for dwellings, and not detached houses? I’ve seen such figures bandied about before, but once you include apartments it’s a different picture.

      Edit: actually, I looked it up and the California number at least is single AND multi family dwellings. If the Texans are building that much in one city, they have a problem with overbuilding, because they’ll need to grow the city by 200k+ people per year to fill them.

      • 172k dwellings for a population increase of 396k seems a pretty good fit – implied occupancy rate of 2.3, compared with the most recent reported occupancy rate of 2.5 – leaves some for rebuilds.

      • The Texans have an interesting strategy – deflate the cost of housing in order to maintain population growth twice that of the wider US via interstate migration. Different to ‘Straya, for sure, but still comes with a whiff of ponzinomics.

        • I think you have cause and effect back to front. Lowering housing costs makes somewhere more desirable, leading to an inflow of migrants (other things equal).

          If South Australia cut its exorbitant land costs in half, leading to an increase in net interstate migration, would that be ponzi-nomics?

      • No, we absolutely agree on what is the cause and what is the effect.

        My point is that Texas has apparently adopted some kind of ‘Big Texas’ policy – they’re planning their future around continuing to increase their population, and as such over time will become dependent on maintaining that increase, and where the ponzi comes in is the possibility that existing Texan resident business owners are able to enjoy the use of lower cost workers who move to the state to undercut businesses in other states and win more work at greater margin, which has the possibility of going pear shaped quickly if other states figure out a way to attract them back.

        With respect to your question – if you mean that South Australia cuts its land costs to something comensurate with its economic standing, by removing extraneous red tape, then no, that is not ponzinomics.

        But if somewhere like Perth during the boom took action to keep land costs low in order to pull in extra people, then yes that would be ponzinomics.

      • statsailor…
        396K and approx half were babies. Not sure the 2.5 works actually when you consider 10% of our homes have 5 or more occupants and 22% have 1. My number are more like 3.41 in reality.

  4. Hi X,

    How has your life improved from increased population over the last 10 years or so?
    How has your life not improved?
    I would suggest that for the existing population, rampant immigration is reducing their standard of living. If by saying that statement, I’m racist, then string me up.
    If the standard of living has declined, when was the last time the existing population were asked whether or not they were happy with our population? And whether or not the numbers here are playing a part in declining living standards?
    I wonder when something, or someone, will have enough balls and clout to truthfully represent the mood of existing Aussies views on our population. I think I will be holding my breath until my last,
    They better ask soon while there are still some of us that were born here left. Maybe that’s the reason they are not asking that question right now, since they know damn well that most if not all of us born residents here think it is lunacy and suicidal to not address overpopulation.
    I’d suggest what is happening is happening without widespread approval by people born here. But then again, their views don’t count for much any more do they? It appears that pollies just want us to die off so the replacement immigrants, can just accept whatever our pollies dish out, since whatever they dish out here, is better than what they had in their place of origin.

    It doesn’t help the rest of us.

    Then again, I’m full of it right?

    Population is an issue no one sees as important. We can just keep growing and our existing infrastructure will happily cater for infinite numbers without any increased economic cost required.
    I must be living in a different country since all I see, is less blue sky, clouded out by increased cement, and a growing debt.

    Take care X

    • You hit the nail on the head.
      In my lifetime, Australia’s population has tripled and so has the planet’s human population. As a result, the population of so many other species has not done so well and we have a less resilient community now that we had 30 years ago.
      Steernorth, there is however a tiny light on the hill called Sustainable Population Party and I invite you to have a look at its policies at http://www.votesustainable.org.au. With any luck and a bit of common sense, Dick Smith will put his shoulder to the wheel for SPP next year as he is a big supporter. He endorsed the Party at the WA Senate re-run April ’14, at which I stood for SPP, seeing a 260% increase over the Sep ’13 election.

      • Hi Peter.
        Thanks for replying to me.
        I will take a look at the policies.
        I no longer vote for any political party at the moment.
        They are all tarnished with the same brush.
        A shopping list is all they offer with no bigger vision for what Australia means, how is it identifiable as a country, WTF does it stand for, how does it treat it’s most weak? etc etc.
        We are on a train wreck currently, and I personally want our kids future to be better than ours. A vote for any of these current political parties, as everyone knows, eventually goes potentially to one of the major players.. Which is EXACTLY why I DO NOT ENDORSE ANY POLITICAL PARTY CURRENTLY OF ANY PERSUASION.
        What does that mean? It means that Australian politicians will be forced to observe tha fact that hopefully, with enough like-minded people who follow suit to protest their outrage and dismay at the current pathetic crop of people in politics who collectively are an ABSOLUTE DISGRACEFUL EXAMPLE OF HOW INACTION RESULTS IN DISMANTLEMENT OF A ONCE “LUCKY” COUNTRY, AND HOW A LACK OF ADVOCACY FOR OUR CHILDREN CAUSES INFURIATION BEYOND BELIEF.
        I personally want NOONE voting for any current political party.
        Some may call that useless…..some may call the contrary that….and some might see that as the most proactive healthiest way to voice complete and utter disillusionment with the most pathetic lot of FUCKERS we have ever seen in Australian political history.
        If a party was to be anti-this stuff, I am on board. I personally, would love to be a part and play a contribution in whatever way possible to that end.

      • I guess you were born in the late ’40s then.

        If the year happenend to have been 1949, you would have seen 91% population increase in Australia in the first half of your life and 58% in the second half, which included a massive extra sugar hit due to a once in 100 years (at least) commodities boom.

    • “I’d suggest what is happening is happening without widespread approval by people born here.”

      Absolutely. And I bet that even recent immigrants aren’t in favour of this urgent quest to grow a Big Australia either. If they wanted a crowded country, they could have moved to one, or stayed where they were. So why aren’t we asked? Because the pollies know what the answer would be. So they don’t ask and do what they (and big business) want. And the problem with voting for the smaller parties like Affordable Housing or Sustainable Population is that their preferences will go either of the two big ones, and both major parties are in favour of … you guessed it. So any way we turn, we’re screwed.

      • Interestingly md, a number of surveys, including by Galaxy, consistently find that 70% of people don’t want the “Big Australia’ outcome, which supports your thesis.
        Regarding minor parties, preferences go where the voter chooses to direct them! If you don’t want to preference the Big Australia junkies, chose another candidate. The electoral Commission forces all Parties to register preferences. SPP for instance directed preferences to like minded small parties, such as Animal Justice and Democrats, while the three majors got equal billing down the list somehere in the middle at about number 40 for the Senate!

    • Totally agree. We have a political class of newts. If you were employing managerial staff, you’d find it hard to give a job to more than 5% of them really! They are in-bred, family lineage, union time-serves and party back-roomers, most of whom have never had a real job involving the responsibility to pay staff and create anything. Hardly any engineers or scientists among them. Lawyers, teachers, union reps, an accountant or two and one or two farmers, that’s it.
      The few who have joined politics to change the world and make a difference, like Peter Garrett, get chewed up and spat out by the system or become totally ‘duchessed’ by it with so many people blowing smoke up their asses, until they think that they really have some special power and deserve all that praise independently of their position.
      Despite that, SPP figures that that making a difference is more difficult from outside of the tent than from within. Sadly, the list of candidates from 2013 election has come off the site now, but I think it was a very strong group of well educated, independent people with a much higher average level of education, diversity, commitment and work experience than other such groupings I have seen.
      @StatSailor, I was born in 1952 when Australia’s pop was 6.7 million and the world was at 2.9 billion. It is instructional to remember that when Australia held the Sydney Olympics in 2000, its population was 19 million and in the intervening 15 years, that will have grown 26% to 24 million by the end of 2015.

      • Dude, the 1947 Census put the population of Australia already at 7.6 million, and the population in 1952 has been estimated at 8.5 million.

        EDIT: Just noticed the words ‘exclusive of full-blooded Aboriginals’ in the 1947 census report. I guess the 7.6 mill is a bit short of the total.

        The point of my comment was that the population growth seen in Australia between 1946 and 1970 was highly exceptional and is very unlikely to be repeated in the lifetime of anyone commenting on this blog or even their children. So talking about a tripling of population in your lifetime is a distraction, and doesn’t generalise to anyone’s future.

        The population of the world has increased, as you point out, by about 5 billion since you were born, but as it currently stands, it is unlikely to increase a further 5 billion between now and the end of the century, 85 years ago.

        I don’t find it particularly exceptional or instructional that Australia’s population rose strongly during a period in history when we were handed the biggest economic free kick we will ever be handed, although I don’t think it is especially positive or is evidence we handled the boom well.

        The recent population growth in Australia, is, as you suggest, Unsustainable, and as such, won’t be sustained.

      • Yes sorry Stat. Australia’s population was 8.6 m in 1952.
        The thing is that over the past 220 odd years, we’ve cut down 75% of Australia’s native forest and that’s closer to 90% in WA.
        Recently, Australia’s population has been growing by the largest amount ever. Expansion by ~400K pa is well above the high rates seen post WWII. Nature does no care for percentages it sees the number of feet and how heavily each foot stands.
        What you will note about this:
        is that growth is almost linear and over the past 15 years has actually arced up to look more exponential.

  5. Consider Norway vs Saudi Arabia.

    – both had a huge boom from oil exports.
    – both nationalised and built sovereign wealth funds.
    – the GDP of both nations has generally tracked closely for decades with a couple of oil-induced divergences including now (N 500B : 746B SA)
    – in 1960, the populations of the two nations were about the same (N 3.6M : 4.1M SA)
    – today Norway consistently ranks near the top in surveys of happiness and desirability to live, unlike Saudi Arabia. Norway has arguably the highest living standards of any nation on the planet.
    – this shows up in GDP per capita: (N 97k : 25k SA)

    There are many reasons why living standards are so much lower on average in Saudi Arabia than Norway, but here’s a really obvious factor: https://goo.gl/PZfQut

    – GDP: https://goo.gl/K4tGaX
    – GDP / capita: https://goo.gl/9hz695
    – Population: https://goo.gl/PZfQut

    Unless each new person brings a bigger slice of pie with them or becomes a baker, then more people just means less pie for everyone.

    It’s not rocket science.

  6. Poking around for data on population prospects I came across this, from the most recent (only two days old!) UN update on world population growth:

    “India [is] expected to surpass China as the most populous around seven years from now ”

    Crikey, that’s a lot sooner than I’d expected!

  7. Comparing apples with oranges, i.e. not explaining definitions, details and qualitative side.

    The employment with ‘immigration’ link is complex, and often tenuous, especially if the latter is neither explained nor defined (as required in social science). Many, if not the majority of so called ‘immigrants’ suggesting they are permanent, are in fact temporary with limited work rights e.g. backpackers cannot stay in employment long term (6 months max?), they must do regional agricultural work to qualify for 2nd year visa; while students only have part time work rights during school, with disadvantage of speaking English as a Foreign Language (work rights are explained on DIBP website).

    Further, there is a massive assumption, i.e. Australians are working in the right or productive occupations and sectors……. which many are not, and ‘immigrants’ are used to plug those skill gaps in short medium term, while everyone talks of how young Australians should be training up in the right occupations for the appropriate sectors, which many do not……. i.e. no matter what unemployment is, skilled shortages can and do exist.

    Regarding infrastructure and ‘immigration’, this should be ‘population in cities’ which are impacted by not just ‘immigration’ or ‘immigrants’, whom are mostly younger and temporary internationals, while paying for services and contributing to tax, without voting rights, permanent residence eligiblity etc., but also domestic or native phenomena.

    The other major domestic contributors to city population growth are intra and inter state migration (regional areas, agriculture etc. with declining populations or employment needs), along with the ageing population who are staying on longer (in their homes too) with prosperity and better health care. Related to ageing is the increasing need for state pension support, aged care and dementia increasing as a health and quality of life issue (it is why internationally temps are encouraged to support the tax base, but not draw from it, then leave) .

    Will be interesting to see what the solutions will be with increasing significance of the ageing pre WWII and especially post war baby boomer ‘bomb’ or bubble on population growth, from about 30% now, and becoming higher in future, compared with younger relatively smaller cohorts in the population?