Australia’s Fake Left and Right are fighting the wrong war

On Saturday I was reading the various pundits and their pretty useless takes on what Tony Abbott is up to, most of whom think he has ruined his chances of becoming PM again, when I found a much better take from The Guardian’s Katherine Murphy:

Abbott wasn’t actually talking to the colleagues, which is probably wise, given many of them want to lock him in a cupboard and throw away the key.

It was more vicious than a conventional party room courtship exercise.

He looked over their heads, and spoke instead to the voters Malcolm Turnbull is currently intent on trying to woo back: white working-class voters in regional areas stranded at the fag end of the mining boom – the folks drifting dangerously in Hanson’s direction because they’ve had a gutful of the circus in Canberra.

Abbott took the central pitch of Turnbull’s new year strategy to put a floor under the Liberal party’s ebbing primary vote – the energy security offensive and the government’s big coal pivot (which resonates in the post mining boom regions) – and he demolished it.

He said the government’s policy on climate and energy was an incoherent crock.

Not content with yanking the rug out from under Turnbull and the government’s political “recovery” strategy for 2017, Abbott then upped the ante in the political arms race for disaffected conservatives.

That is exactly right (pun intended). And Abbott succeeded spectacularly in driving those voters away from Team Do-nothing as they raced out to repudiate his agenda.

But, as I read on, my thoughts turned from praise for Murphy as a centre-Left analyst to frustration:

He put immigration on the table. Apparently we need to cut immigration to help housing affordability – a complete nonsense, and incendiary to boot – but designed to hit the front bar “nod” test. (“So that’s why I can’t afford a house. Bloody immigrants. Hogging Aussie houses.”)

It’s a little fire you light in fractious times, and watch the embers burn. If voters have logged the substance of Abbott’s pitch, rather than just consumed it as colour and movement, his message will certainly resonate in some parts of the country, and it also reflects one view inside the government.

The chairman of the government’s backbench committee on environment and energy, Craig Kelly, just to take one voice, agrees with most of what Abbott said on Thursday night, including the desirability of lowering the immigration rate.

The link was to Phil Lowe’s discussion of tax concessions inflating property. Yet the RBA head also said in the same breath that:

In parts of the country that have been adjusting to the downswing in mining investment or where there have been big increases in supply of apartments, housing prices have declined. In other parts, where the economy has been stronger and the supply-side has had trouble keeping up with strong population growth, housing prices are still rising quickly.

In short, high immigration is one driver of falling housing affordability and it is entirely credible to say so.

Peter Hartcher of Domainfax also refuses to acknowledge the link, drawing a false binary choice between zero net immigration and turbo-charged mass immigration, while peddling the usual economic lie that immigration can overcome an ageing population:

…the main political parties are edging closer to Pauline Hanson territory in search of solutions. One Nation policy? Zero net immigration compared to the current level of about 200,000 a year.

Why is Australia’s normal intake relatively large, adding about 1 per cent to the population a year? And why have both major parties supported this for so long? We don’t do it to get a better menu of international dining options. Or to be nice to foreigners. We do it because it’s in Australia’s national interest. Because immigrants are younger than the average population, as a deliberate act of government policy. This slows the ageing of Australia’s population. That, in turn, slows the oncoming rise in national health costs.

With respect, that’s pretty naive. Migrants also age – a point made many times by the productivity commission (PC):

• PC (2005): “Despite popular thinking to the contrary, immigration policy is also not a feasible countermeasure [to an ageing population]. It affects population numbers more than the age structure”.
• PC (2010): “Realistic changes in migration levels also make little difference to the age structure of the population in the future, with any effect being temporary“…
• PC (2011): “…substantial increases in the level of net overseas migration would have only modest effects on population ageing and the impacts would be temporary, since immigrants themselves age… It follows that, rather than seeking to mitigate the ageing of the population, policy should seek to influence the potential economic and other impacts”…
• PC (2016): “[Immigration] delays rather than eliminates population ageing. In the long term, underlying trends in life expectancy mean that permanent immigrants (as they age) will themselves add to the proportion of the population aged 65 and over”.

Of course, Hartcher has conveniently not accounted for the extra taxes that would be required to fund all the extra economic and social infrastructure to cope with an expanded population, not to mention the economic costs of mis-managed high immigration.

This is where MB dramatically parts ways with Australia’s centre-Left press. We are very much committed to rational and evidence-based policy which, over the past decade, the centre-Left political parties have had a stronger grasp upon than a science-hating Coalition. But when it comes to immigration, the centre-Left cabal at Domainfax, Crikey and The Guardian very much do not share that commitment. Fairfax pumps pro-immigration propaganda in support of its only growing business in Domain. At Crikey and The Guardian the driver appears to be a blind paranoia about racism that runs so deep that it overrules all facts and, indeed, discards the Left’s only real reason for being: it’s defense of economically marginalised classes. This is Australia’s Fake Left.

That’s the rub. Today’s dispossessed classes are those that do not own property and have no hope of doing so. This includes old school working classes on low incomes and virtually the entire millennial generation of Australian children.

To put it bluntly, this is a class war of epic proportions and it is no different to those class wars that came before it, including:

• the ghettoisation of working classes because high immigration undermines wages at the low end of the economy, and folks can’t buy property unless their parents already have it as collateral.
• a grotesquely indifferent bourgeois that benefits while the underclass sinks.
• a capital class that creams it as it takes control of the political economy, driving the wealth disparity ever wider.

In part, these dispossessed classes are the groundswell support for Pauline Hanson’s One Nation. Her vote is strongest in disadvantaged, white suburbs. She is racist and her party is an anti-science idiot. But she does have a decent set of housing affordability proposals and she does not pretend that immigration is not a factor in the high prices.

Contrast this with the Fake Left who lecture the unpropertied about the purity of high immigration while pretending it is in their interests. This is not only to deny the downtrodden’s reality, which will drive anger, it is to deny one bleedin’ obvious cause for it, which will trigger rage. Is it any wonder, then, that working classes prefer Pauline!

Marginalised Australian youth is less attracted to One Nation. Indeed, it is a shining example of enlightened values that embraces difference from a deeply entrenched identity. But that places youth between a rock and a hard place given it can only find economic representation in political parties that are uber-conservative. This is a paralysing mismatch in expectations versus values that is also enraging a generation. That fury is going to come out somewhere soon enough. If no other option appears then the obvious channel for it is an avalanche of support Labor’s negative gearing reforms.

But, although cutting negative gearing will certainly help slow price gains, and maybe even trigger some price falls, while immigration runs at such extreme levels into Sydney and Melbourne, even the impact of this reform will be muted on affordability. Meanwhile, the deleterious effects of too many people using under-capitalised infrastructure and public services will continue to raise anger across the polity, pushing more folks the way of the populist Right.

Joining with the Fake Left on the weekend was the Fake Right, in the person of Sinclair Davidson at the AFR:

More concerning, however, is the increased antagonism towards immigration. To be sure, there is much to dislike about immigrants. I have loathed migrants ever since I became a citizen myself. They take our jobs, live in our houses, marry our women, deprive our children of jobs, and speak with strange accents. Most immigrants have the temerity to integrate into Australian society and come to think of themselves as being Australian!

Now Tony Abbott wasn’t as crude as that in his call for restricted immigration but many would nod in approval while thinking those, or similar, thoughts. The official line for restricting immigration is to reduce house prices (at least until housing starts pick up). As if most new migrants to Australia could afford to buy a house upon arrival.

Abbott accuses the federal Treasury of having a “big is best” mode of thinking. Quite right. Most economists support free trade and have done so since Adam Smith. Economists understand that more trade leads to improvements in our standard of living and greater prosperity. This is the basis for promoting international trade.

What many people don’t seem to realise is that domestic trade is good for prosperity too. We can trade with foreigners across international borders, or we can trade with immigrants right here at home. The case for free trade – an argument Abbott knows well – is also the case for immigration. We are better off when goods and services cross borders and when people cross borders, too.

Sinclair is, of course, a doyen of the Institute of Public affairs, that magnet for Fake Libertarian nutters that have a preternatural hate for government (not without reason!) and are instinctive defenders of private enterprise, even when that means the destruction of capitalism via rent seeking.

Don’t get me wrong, I am all for free trade but it is not some equal with immigration. That’s stupid. Here’s the chart:

Since the GFC, gross operating profits have not grown in the economy at all. Total wages have at a slower pace than history. But per capita wages haven’t.

What does this tell you, Sinclair, about the economic impacts of high immigration in an economy with loose capacity? There is no income growth because there is no productivity growth. Indeed, because high immigration is so poorly managed owing to grotesque under-investment and mis-allocation, all we are doing is adding more people to share in the same income, shrinking everyone’s bit of the pie. There’s revenue growth for business but no profit growth as any new demand goes straight back out in extra staff on lower wages.

The rationale for free trade is competitive advantage driving specialisation and efficiency gains making everyone richer. This is the complete opposite, an economy getting less efficient in support of a few rent-seekers attached to the great housing parasite. Skilled migrants with PhDs don’t add anything in this economy, they drive Uber cars, flip burgers, wash dishes and clean houses, de-skilling them.

But don’t just take my word for it. Detailed modelling from the PC in 2006 found that boosting skilled migration by 50% over the years 2005 to 2025 would actually lower the incomes of incumbent workers, while wealthy capital owners (and the migrants themselves) reap the gains. Here’s the money quote:

The increase in labour supply causes the labour / capita ratio to rise and the terms of trade to fall. This generates a negative deviation in the average real wage. By 2025 the deviation in the real wage is –1.7 per cent…

Broadly, incumbent workers lose from the policy, while incumbent capital owners gain. At a 5 per cent discount rate, the net present value of per capita incumbent wage income losses over the period 2005 – 2025 is $1,775. The net present value of per capita incumbent capital income gains is $1,953 per capita…

Owners of capital in the sectors experiencing the largest output gains will, in general, experience the largest gains in capital income. Also, the distribution of capital income is quite concentrated: the capital owned by the wealthiest 10 per cent of the Australian population represents approximately 45 per cent of all household net wealth…

Both the Fake Left and Fake Right are fighting the wrong wars. As such there is a large and growing class of dispossessed Australians in desperate need of political representation when it comes to income growth, house prices and infrastructure efficacy. Their standards of living are falling, nobody is explaining why, they’re lied to, looked down upon and blamed by both halves of the traditional political spectrum as:

• the post-mining boom economic adjustment denudes income from everyone but especially working class men;
• the best management for that adjustment is a long process of reform that raises competitiveness and productivity via mutual sacrifice while supporting the vulnerable, but
• policy has instead papered over the adjustment by “stuffing” our major cities full of people (as Ken Henry put it) to support a housing bubble, consumption growth and associated rent-seekers, which is creating a whole new class of losers and making life worse for the most vulnerable.

The answer sure ain’t Pauline Hanson but it’s absolutely no wonder that more and more folks will give her a go.