14-point plan to address Australian inequity

Make no mistake, the biggest issue being addressed right now is wealth inequity across society, classes of workers and generations. The rise and rise of non-mainstream populists is but a step, a reaction. The tsunami for change is rolling and won’t stop until it breaks.

I have eight children and as the youngest has just turned 18, they are all now adults with the usual life aspirations. They have great advantages as they are all very intelligent (except one who has a genetic disorder), good looking and reasonably well educated. Nevertheless something quite profound happened at our last get together. The consensus amongst the kids was stark to say the least. They all were very down on the future; the overblown housing market, job and earning prospects are crap to non-existent, foreigners are buying the country unabated, over-paid and corrupt bankers and the appalling choices of leaders in politics everywhere. Naturally if I couldn’t explain to them why and how to fix it in simple, understandable terms then I would be paying, and not just for dinner.

I could have described how this happened to my children as one great conspiracy by elites over the last 35 years to enrich certain sections of the population at the expense of others and future generations, but they’re too smart for that conspiracy crap. How about, the world experimented with freer trade, freer capital flows across borders and unfettered money creation via private banks through huge credit expansion as the first steps? The kids understand enough to know that those things on their own were not necessarily bad things. Kids: So what really happened?

Basically the whole experiment was not a conspiracy, but a stuff up caused by incompetence, ignorance and raging self-interest. Governments and central banks created policy settings within the globalisation of trade and finance that could be described as pork barrelling for many, and monopoly and rent creation for a few. These settings distorted the capitalist experiment into a system which gave short term sugar to many and entrenched very large gains to the elite, partly from productivity and efficiency, but mostly by rewarding asset owners and shifting the cost of enrichment to the future. Kids: Simpler English dad?

Freer trade flows allowed cheaper consumer goods, but this shifted first world jobs to third world countries without any thought to what replaces those jobs. So whilst the consumers were happy for a while with their new purchasing power and credit to buy goods, their job opportunities and job worth decreased considerably over time. Freer capital flows in the form of debt encouraged both Australian governments and the private sector to increase offshore borrowing, and inject those funds into the economy, maybe irresponsibly. The offshore borrowings were sugar for the economy as money was injected by budget deficits and housing loans. However, these borrowings weigh heavily on the future when the sugar stops, or worse, when it has to be paid back. Why value labour when today’s free money solves all ills? Kids: Dad are people cruel or stupid? Dad: It gets worse

Governments allowed the globalisation of the banking system, which in turn globalised the private creation of money through debt. At the same time central banks pursued policies which kept inflation and interest rates low, accelerating credit growth and the creation of money by private banks. This situation locks in asset inflation, as the money created by debt pushes up asset prices as it looks for a home. In Australia the home is literally the home. As this process churns, the economy becomes bar belled as more money or wealth is sucked into the hands of asset holders and sellers and debt is loaded on the wannabes. Whilst dollars must be equal, the numbers are heavily skewed to the debt side in the forlorn hope that wider distribution of debt will keep the scheme afloat. Debt driven asset inflation is one source of wealth inequity and the other, as I described, is the devaluation of labour. Kids: Doesn’t high immigration solve these problems as our politicians tell us?

Australia has used high immigration to mask the problems and to pump the wealth inequity. Adding too many people without the productive jobs continues the devaluation of labour, whilst adding to the wealth of entrenched asset and business owners. It certainly adds to the support of the debt load but as debt has to grow at an even greater rate to create the money to keep things afloat, the load per person continues to grow, thus shifting more and more wealth away from most of the population, but mainly the young. Of course it may be that most immigrants are very wealthy and inject their wealth into the economy through productive pursuits. Simple observation tells us that this is not the case or LOL.
Kids: What more can these fuckers do to us? DAD: How about send you to fight a foreign war in the name of some spurious nationalistic cause that again only benefits or bails out the elites?

Or you could get out the pitchforks and muskets and storm the Bastille. Which is what Trump, Pauline and many others are about, at least metaphorically, and that is the destruction of the establishment.

Whilst the populist movements may feed on anger, they’re just another symptom of wealth inequity and not a solution, though they certainly highlight the issues and get the wave rolling. Practically there are things which can be done to reverse the process

The problem for the beneficiaries of the current system is that the system is out of control, with no ability to find a steady state. Central banks, including our RBA, who mostly gained their independence through the period in question would have you believe that they can control outcomes to the benefit of all. While in reality they are simply pursuing their own agenda of pumping inequity and temporary sugar for the masses until a crisis hits. So another financial crisis is baked in and it will be bigger and wider ranging than the past.

What those on the losing end of inequity must do is ensure that next time around the elites aren’t bailed out at the expense of everyone else, as occurred in the years from 2008. This will not occur and history will repeat unless there is a legitimate political movement to make those responsible accountable and reverse wealth inequity. Dad: So kids, you need to get active. There is no other way. Kids: If we get active, how do we actually improve wealth inequity?

Reality may be difficult to take, but if the system has created too much money then wherever there is a savings of money, that is deposits in a bank, then part of that money is excess. Any redistribution of wealth will have a negative impact on the majority. Here’s how to address wealth inequity.

  1. Asset values must be crunched and debt written off. This must be a political act. Nothing can be expected of bureaucrats or central banks. The independence and non-accountability of the RBA must end. The people or parliament must decide monetary policy.
  2. Drop interest rates hard into real and nominal negative territory and make it clear that the next moves are up and up. This is not about increasing credit creation, it’s about actually destroying both money and debt in non-productive assets, a redistribution. Its also about encouraging productive investment and not asset investment.
  3. The RBA can replace the ensuing capital flight from the banks due to the collapse of interest rates with our own form of mortgage QE to fund the banks. At this stage the AAA rating is history but banks are liquid.
  4. No bank rescues must be made clear, with equity and bond holders taking losses from mortgage defaults as house prices fall. This will flow through to losses in almost everyone’s super funds as just about everyone will have bank share and bond exposures, but it’s the way its gotta be.
  5. Banks must increase capital against residential mortgages and overall so they are unquestionably strong on a non-risk adjusted basis. If they can’t they are nationalised with management held responsible. Any bank with only the smallest government support must have management salaries capped at say 8 X average wages.
  6. Serviceability of mortgage loans provided by banks must be based on a normalised rate of at least 8% and mortgage terms set at a maximum of 20 years. Failure to comply is a criminal offence. This won’t improve affordability in the short term, but it will once the system is recalibrated.
  7. Net immigration is reduced to a manageable 0.4% of population per year.
  8. Any tax concessions that favour housing investors over owner occupiers, i.e. negative gearing and CGT discount are to be removed. No grandfathering, just one big bang, gone. These selective tax benefits have turned into an abomination.
  9. Tax benefits for the wealthy through superannuation concessions to be removed immediately leaving only a small flat capped tax benefit for all. Currently superannuation is nothing more than a tax dodge for the rich. Superannuation does not of itself create wealth, it redistributes it.
  10. A Death and Gift tax of 20% to be introduced. Due to wealth inequity, much of accumulated wealth is unearned and needs to be clawed back to balance the ledger. Wealth inequity makes these taxes fair and must haves.
  11. Abolish stamp duty and replace with an annual land tax, higher for vacant property and land. Special tax for land bankers.
  12. Enforce Australia’s foreign buyers of housing laws and international money laundering laws.
  13. The RBA and APRA merge with a broader mandate which includes overseeing a balance between corporate, SME and household lending, which encourages the growth of productive businesses. Management of the financial system includes no taxpayer support for any individual bank failure, but protection of the financial system as a whole as a priority along with inflation and employment.
  14. If the budget is still not balanced, which it won’t be, the real pain needs to start. Although commodities may assist with budget repair for a while yet, Government debt levels must at least stabilise. We must find added value stuff to sell to the world. Stuff that values labour. The government must directly support these initiatives and provide the infrastructure where the creation of stuff that values labour flourishes.

Nothing to it really.

Comments

  1. No mention of helicopter money or UBI?

    Put in a sugar tax, coal tax, tap water tax, land tax, and give every poor voter $20k/year after tax return time.

    Or remove the job search requirements of Newstart – Gillard gave 457 visas to KFC for goodness sake!

  2. Would it not be easier (and more brutally honest) to tell your kids that Paul Keating is to blame?

    • Keating was nothing compared to the decade long wrecking crew of Howard and Costello.

      • Um, who deregulated the banks, opened the country up to unproductive capital inrush, lifted tarriffs on manufacturing and textiles, created an independent inflation targeting RBA, privatised the pension system to spivs, sold off CBA, refused to stimulate during the early 90s recession, gave the wealthy one of the biggest tax cuts in Australian history, first floated the GST, caved in to the developer lobby…?

      • Um, how do any of those things (on the dubious assumption they’re all true) compare with tax-free to infinity superannuation pensions and halving income tax on the fruits of speculation?

      • How does creating a privatised pension system compare to tinkering the tax settings on said system?
        Is that your question? Seriously?
        Try harder.

    • If Paul Keating was to blame then how do almost the same stupid play out in New Zealand or the UK or the USA?
      Keating played his part in this mess but he was certainly not alone.

      • Well in terms of the UK:
        http://www.theaustralian.com.au/national-affairs/foreign-affairs/paul-keatings-secret-advice-to-britain/news-story/2f66f1a54ddd3a833a0642060c966867

        “Tony Blair has described Paul Keating as a “role model” and progenitor of centrist “third-way” politics that inspired New Labour, and revealed Mr Keating was a secret adviser while he was British prime minister.
        “I used him to get a sense of where we were as a government, and he was very clear about how we had to keep momentum up and stay together, remain in the centre and not drift to the left,” Mr Blair said in an interview.
        Mr Keating also secretly ­advised Gordon Brown, who succeeded Mr Blair as prime minister in 2007. They met several times at the prime minister’s residence, No 10, spoke occasionally on the phone and Mr Keating wrote him letters with frank ­advice.
        Alastair Campbell, who served as Mr Blair’s communications ­director, revealed Mr Keating ­offered both British prime ministers suggestions on policy and political strategy and shared his candid assessments of world leaders. “That is not to be under­estimated,” Mr Campbell said in the book.”

        He wasn’t satisfied just wrecking this country, he had to wreck the UK as well.
        In terms of the US, they went down the same toxic third way path that Keating founded.

        In the history of Australian labour movement treachery It is tempting to place Keating on the same page as Joe Lyons, Billy Hughes, Joseph Cook, John Kerr, Colston…
        But that would be too generous.
        These guys merely sold themselves out. Keating sold out the labour movement and the country.

      • bolstroodMEMBER

        In NZ, exPM David Lange said he was amazed that the people did not rise up and murder the politicians who had presided over the economic rationalisation of the economy, known locally as Rogernomics.

      • Come back when you can blame Keating for advising Blair to commit his warcrime of starting the Iraq war. Until then, Keating’s advice to Blair is just a big yawn.

      • Look, you’re clearly a dug in rank and file member who believes in the post 91 fakery when Keating knew it had all gone to the proverbial.
        That is fine. Just don’t post about it on forums. Go hand out ALP how to vote cards or discuss the republic at dinner parties or something.

    • you’re clearly a dug in rank and file member

      OK, an ad hominem argument. Thank you for letting us know that’s your best argument.

      You can go back to the Howard and Costello appreciation party now.

      • Not likely.
        I’ll go back to the true social democratic (pre-Keating destruction) Labor party of Curtin and Chifley.
        You can go back to discussing the Republic at dinner parties.

    • Private pensions existed long before Keating. At least he increased the tax on lump sums. I’ll grant that taxing low-income earners compulsory superannuation (which will never amount to much compared with the old age pension) is unfair but at least there used to be some progressiveness on the taxation of superannuation pensions.

      But making superannuation pensions tax free to infinity is tinkering??

      You cannot be serious.

      • Ok lets go back to basics on this.
        If you are head of a party whose raison d’être is fighting the employer and supporting the worker:
        Would you create a system which relies on the employer to make payments toward a workers pension, send their regressively taxed income to the top end of town to be gouged by the fund manager, and gives them no control over their standard of living in retirement?
        Oh and then wonder when the above system creates a lobby group who wants to rort it?
        Clearly you would, because the Republic or something.

    • You can go back to wherever you don’t talk about the decade long wrecking crew of Howard and Costello.

      • Nothing to talk about because there was nothing left to wreck because Keating had already wrecked everything and had moved on to wrecking the UK.
        Rip van Winkle years to borrow a phrase (from your hero)

      • pffft that’s your argument? super isn’t a pension?

        Are you the best the NSW right of the Labor party can find?

    • super isn’t a pension?

      I thought you were talking about THE pension system as in

      privatised the pension system

      Not my fault if you suddenly start talking about a small part of low income earners retirement income as if it is THE pension system. It’s not.

      And since when does compulsory superannuation have anything to do with applying income tax to the superannuation of high income earners who have made an art form out of exploiting super tax breaks?

      You might not go to the Howard and Costello Appreciation Society but you would fit in so well.

      • “And since when does compulsory superannuation have anything to do with applying income tax to the superannuation of high income earners who have made an art form out of exploiting super tax breaks?”

        I’m not sure what you’re getting at. Are you saying there should be a ban on SMSF’s? On SMSF trustee’s buying assets from beneficiary related parties? Because Keating doesn’t.

    • nothing left to wreck

      So completely removing income tax from superannuation pensions is not wrecking the income tax system? And halving short-term capital gains is not wrecking the income tax system either? Let me guess, you thought Keating’s introduction of CGT was wrecking the system.

      But at least you would know not to talk about the first two at the Howard Costello Appreciation Society.

      • “So completely removing income tax from superannuation pensions is not wrecking the income tax system? And halving short-term capital gains is not wrecking the income tax system either?”

        Out of the long line of neo-liberal wreckage I listed you couldn’t point to anything which wasn’t true. This is all you’ve got.
        Howard *replaced* indexation with the CGT discount, he didn’t halve anything. And the CGT system is unrelated to the Income Tax system. Do your research.
        I guarantee nothing I’ve said can be contradicted – otherwise I wouldn’t have said it. But keep trying.

    • I’m not sure what you’re getting at.

      Removing income tax from the superannuation pensions of high income earners who have made an art form out of exploiting super tax breaks is part of the wrecking done by Costello and Howard. A wrecking which you think didn’t happen.

      • No it’s part of the wreckage created by creating a tax preferred asset called super by Keating.

    • Out of the long line of neo-liberal wreckage I listed you couldn’t point to anything which wasn’t true.

      Oh OK so now you’re not denying that Costello and Howard were a wrecking crew in spite of claiming not long ago that “there was nothing left to wreck” by Costello and Howard. It’s hard to keep track of your latest position.

      Howard *replaced* indexation with the CGT discount, he didn’t halve anything.

      For someone who claims to want to go back to the true social democratic Labor party of Curtin and Chifley, you sure have a knack for defending Howard. And you don’t know much about CGT either. Short-term capital gains are virtually halved under the Costello-Howard formula. For example, say you made 20% CG over just more than a year with 2% inflation. Under Keating you add 18% of the original asset value to your taxable income and pay additional income tax on that. Under Costello-Howard you add 10% of the original asset value to your taxable income and pay additional income tax on that, a boon to short-term speculators compared with Keating.

      And the CGT system is unrelated to the Income Tax system.

      What??? That comment just takes the cake. Have you ever put capital gain on an income tax form? Doesn’t look like it.

      CGT has everything to do with income tax. That’s why CG is put on the income tax form.

      Do your research.

      You would do well to take your own advice.

      I guarantee nothing I’ve said can be contradicted

      Ha ha yeah right, like “the CGT system is unrelated to the Income Tax system”. Maybe you’ve said some things that are true like Keating gave advice to Blair etc, but unless that includes something that is recklessly wrong like advising Blair to commit his war crime of starting the Iraq war then they’re just a bit of a yawn.

      • Right. So I suppose it would be possible to reduce your current year taxable income by deducting capital losses just like you would revenue losses? Since the principles are the same. Have you done that when filling out your return?
        Keep digging.
        btw your indexation example is irrelevant. I never said the discount wasn’t favourable in a low inflation context. I just said it wasn’t as simple as saying Howard halved it. put an early 80s inflation rate into your example.

    • No it’s part of the wreckage created by creating a tax preferred asset called super by Keating.

      So now Keating is responsible for what Costello and Howard did years later. With an attitude like that, it’s no wonder you come up with such gems as “there was nothing left to wreck”. Tax preferred superannuation existed long before Keating. The most obvious ones were the government schemes but there were also private ones which often used insurance companies. And of course there were tax preferred lump sum payments as I have already mentioned. Keating just cracked down on the obvious rorts and brought in a uniform system that preserved the existing recognition that savings for retirement needed some preferential income tax treatment otherwise there would be no retirement funds. But somehow some people rewrite this history as some sort of wrecking. These people must have had some serious problems with their lives to have such resentment.

    • I suppose it would be possible to reduce your current year taxable income by deducting capital losses just like you would revenue losses

      Oh dear. Not another silly red herring. Just because taxpayers generally can’t reduce their current year taxable income by deducting capital losses doesn’t mean that

      the CGT system is UNRELATED to the Income Tax system.

      CGT is very much a part of the income tax system. Read all about it in Part 3-1 of the Income Tax Assessment Act 1997: http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/

      Wrecking CGT means wrecking part of the income tax system. End of story.

      • Look the revenue / capital dichotomy is one of the fundamental underpinnings of Australian tax law.
        This is exactly why a CGT system had to be established. There is very little overlap.
        I get that you have done a tax return. I have been on a plane. That doesn’t make me an aeronautical engineer.
        Meanwhile you have failed to knock a hole in the obvious proposition that Paul Keating singlehandedly wrecked Australia.
        Actually you haven’t even been able to set out a counterpoint.
        What are you going to tell Sussex st?

    • Look the revenue / capital dichotomy is one of the fundamental underpinnings of Australian tax law.

      OMG yet another silly red herring. Just because there is a dichotomy between normal revenue and capital for tax purposes does not mean in any shape or form that capital gain does not contribute to taxable income or that

      the CGT system is unrelated to the Income Tax system.

      Do you have a problem with reading the Income Tax Assessment Act? Whether I can do a tax return or not has nothing to do with Capital Gains Tax being part of income tax law. You made an obviously false claim that the CGT system is UNRELATED to the Income Tax system, not part of a dichotomy between income and capital but UNRELATED. So unrelated that it makes up a whole Chapter of the Income Tax Assessment Act 1997. Maybe you have a different meaning for the word “unrelated” from the one I’m used to but that sure looks related to income taxation to me.

      If you wipe out CGT then you wipe out a lot of income tax collection. If you wipe out a lot of income tax collection then you are wrecking part of the income tax system. But you’re just playing silly word games anyway. Wrecking the CGT system, even if you’re on another planet and want to say it’s not part of the income tax system, is still part of the wrecking that Costello and Howard did.

      Actually you haven’t even been able to set out a counterpoint.

      You have a serious reading problem if you didn’t notice where I said above in response to another one of your false claims (“creating a tax preferred asset called super by Keating”):

      “Tax preferred superannuation existed long before Keating. The most obvious ones were the government schemes but there were also private ones which often used insurance companies. And of course there were tax preferred lump sum payments as I have already mentioned. Keating just cracked down on the obvious rorts and brought in a uniform system that preserved the existing recognition that savings for retirement needed some preferential income tax treatment otherwise there would be no retirement funds.”

      What are you going to tell Sussex st?

      Keep up your ad hominems. They give your arguments so much credibility.

  3. Follow the money, often this is the reason for outcomes it is no coincidence that the 0.01% have creamed the lion share in many cases from economic rents. So your conspiracy argument maybe correct however in a finite world is it no coincidence. Given governments globally are lazy and do nothing if they can get away with it, do you really think all the changes to the system was not pushed, coerced and concocted by dubious economic arguments that barely pass the laugh test to benefit who exactly ! The system has been gamed by the few with the incompetence of policy makers to see how this would play out. This has been in the making since the 70’s.

  4. 1 Let the banks go under, nationalise the credit function, ie a new ‘bank of the commonwealth’.
    2 Immigration halted
    3 Pensioners must now have a strict assets test being the major beneficiaries of housing boom.
    4 Tax corporate revenue at 2%+ of all earnings, in view of removing all other taxes in the future, closing most of ATO’s function
    5 Corporations should have a 99 year lease to govt on property never freehold
    6 Govt should not pay interest on money created out of nothing, therefore bonds issued by treasury. Amount borrowed should reflect creation of wealth through this debt spending on infrastructure.
    7 Raise minimum wages as a form of recession bailout – by way of UBI closing centrelink.

    You still don’t get the stupidity of neg int rates relative to monetary science – capital destruction, and how it will blow up pension funds.These wealth transfers instead of wealth creation is your blindspot.

    • “Drop interest rates hard into real and nominal negative territory and make it clear that the next moves are up and up. This is not about increasing credit creation, it’s about actually destroying both money and debt in non-productive assets”

      Nice! that starves out the self funded retirees and the Pension Funds. well done. get rid of non productive oldies.
      save me.

      • A rating agency found that US and UK banks control about 20% of the ordinary share equity of our top 4 banks. Thus we may not be allowed to do the downwards cash rate move without a nod from our banking peers. The control could be higher through derivatives AUD positions, etc. Go Aussie (puppets).

      • Thanks Pester for the sanity. My expectation is for rate increases in the US so we follow and currency strife as USD strengthens.
        What startles me is that readers dont respond to this when its well known that Pension Funds are struggling, models are based round 8% income and getting buggerall. Collapsing overseas. Beyond that retirees who self fund need interest to survive.
        Or its taking the public purse pittance and starving.

        And if they pull the lower rates or negative rates antic or look like bail-ins are close, or start pulling cash notes out of the system to protect the banks I certainly will go to bitcoin. Along with people everywhere fleeing the banking scum. The rise in silver buying, quietly worldwide and the strengthening of bitcoin is exactly for defence against crazies.

  5. 1 and 13 are the priority goals ! Should be part of ‘the’ Banking Royal Commission’s terms of reference. Or perhaps this should be number 1 ?

  6. GunnamattaMEMBER

    Great set of points – should all be priorities for a political party. Anyone proposing anything within a bull roar of that when I next get to vote will get my vote. As a policy program it is comprehensive and balanced.

    The words

    We must find added value stuff to sell to the world. Stuff that values labour. The government must directly support these initiatives and provide the infrastructure where the creation of stuff that values labour flourishes.

    …should be carved into the walls of Parliament House, be inside the cover pages of every passport, and should be the centrepiece for the design of our new ten dollar note. As a nation anything we promote with policy which isnt promoting both export competition and the use of labour (particularly if it is promoting one and not the other) is probably a vested interest looking to mine the budget, and should be discounted.

    Sadly however I somehow suspect we wont see either side of politics prepared to take on any more than one or maybe two, presumably as window dressing for committing some other economic policy stuff up.

    But the moment people wake up one morning and see a man on TV wearing a beret, with a good mustache and sunglasses on, calling himself ‘Gunnamatta’ and casually announcing he has taken over the administration of the country, that will be his economic platform – coupled with a national budget and taxpayer audit and the advent of a net budget position for every Australian and a one off budget fraud amnesty (6 weeks only) giving people the chance to ‘fess up and avoid some heavy fines for serious tax avoidance, and twenty years worth of capital gains tax. (a fella can dream)

  7. You are mistakenly believing our politicians are empathetic humans who wish us well.
    Abolish income tax. Decrease govt size by 90%, make it live off the GST.

    • The existing taxation system is merely a rort. All forms of taxes and their exceptions and deductions should be abolished and replaced with a FTT on all bank deposits, ( and withdrawals when that money is sent overseas – the rebuttable presumption being that the remittance is to avoid taxation.) Maybe then everybody, including all companies, would start contributing to the country they live in.

  8. Know IdeaMEMBER

    Thanks for the article.

    I suspect what you have written is what should happen, and likely will happen in one form or another. However, it will only occur, in my view, after the pain really starts, and not a moment before.

    Does any one think long term any more? I remember having an 85 year old acquaintance back in the early ’90’s with a 20 year financial plan. Not because he needed the money (he was loaded), but simply because it was the discipline you adopted to ensure the next generation had a better starting point than you did. If you leave the world in a worse condition then when you entered it, one would have to question what the hell you were up to.

  9. I pretty much agree with all of those points, including the last part of point 14 – but not with the first part of it.

    As long as our sovereign governments debt and deficit levels are regarded as a deficiency in their own right and the notion of running surplus or at least balanced budgets regarded as a crucial goal in their own right, I don’t really envisage much of a change in our situation long-term.

    The sole net creator of Australian dollars is deliberately starving the economy of those dollars and therefore of the demand that keeps everything growing. The private fiat creation that we turned to as neo-liberalism took over appears to be reaching the point where it can no longer keep supporting solid growth that everyone shares in – the private sector is soaked in debt and repaying that debt doesn’t look like it can really be made much cheaper, if at all.

    If the private sector can no longer spend enough to fuel solid, consistent, broad-based growth, if the external sector simply isn’t making much of a real contribution no matter how much money it makes then there is only one sector left who can fill the spending gap. But as long as the surplus fetish remains veiwed as some version of common sense, I don’t really see much of a consistent improvment as being likely.

    Until the idealistic constraints placed on government by the now clearly defunct ideology of neo-liberalism are abandonded, I think ongoing stagnation is the most likely result.

    • nexus789MEMBER

      Yes, public or private debt or both. Public debt is less of an issue although the numbnuts in the LNP are trying their best to make it an issue. Private debt is the big issue. Not sure I like the idea of bailing out all the idiots that are drowning in debt?

  10. SoMPLSBoyMEMBER

    Excellent Deep T!.
    Written from the perspective of the veteran A grade mechanic in the back seat of the new car who is trying to convince the owner/driver to stop and open the bonnet as ‘something’s not right’..

    The driver, intoxicated by the new car smell and admiring glances by those who notice these things cannot reconcile that ANY problem could exist. To the mechanic, all things built by humans are subject to failure and these can be mild and these can also be catastrophic. The very suggestion that serious problems may be surfacing cause the driver to increase their denial; their entire value system is now connected to the vehicle and its an extension of what they have become. The driver will also smell the molecules of ethylene glycol but will insist it’s a factory fragrance. The ‘shudder’ of the failing engine will be interpreted as bad fuel or another innocuous cause-anything to avoid accepting the possibility that this marvellous and expensive machine may not be what it was promised to be.

    We were all taught that economies rise and fall and periods of expansion are followed by contraction; just like the agricultural outputs of our predecessors who learned too about boom and bust years. It all seems very natural therefore. However, the contemporary economic model now operates beyond its own set of supply / demand rules where price and income and stability are always in flux-naturally as we were taught. We have ignored the significant impact that our economy has had on our biosphere as we dwelled only on ROI and ROE and growth and for just a few short centuries, we created the empire of empires and the ‘cost’ of such opulence can never be squared on the ‘off balance sheet’ ledger that accounts for the integrity of our galactic craft. Now, we ( and our kids) can look despondently at the near future and instead of enthusiastic and encouraging developments streaming in from all sectors like we once enjoyed, the opposite will naturally take their place.

    It’s exceedingly difficult to reconcile being part of a profound mistake or application of poor judgement but the consequences of them arrive despite our ‘feelings’. It’s true that an economic ‘reset’ is bound to occur as they have before; however, the headlines will not be what we’re used to seeing–unemployment, inflation, interest rates, poor growth and other yada yada, but that the economics ‘building’ where we studied the tenets and models is now on fire and cannot be extinguished.

    This is a hell of gift for the next and subsequent generations and it’s unclear what options they can run with that don’t include a large serve of anxiety and despair. The least we can do ( as you are doing) is prepare them for a very difficult time ahead. Perhaps, we might even be able to help them find a way as we know a little bit about ‘cars’ and what can happen.

    https://qz.com/882954/world-economic-forum-global-risks-report-2017-environmental-factors-top-the-list-surpassing-economic-ones/

    • nexus789MEMBER

      The so called contemporary neoliberal economic models are useless. It has taken multiple decades to realise this. Economists have no idea how an economy generates ‘economic wealth’ – it must be by magic. All their policy prescriptions do is create more debt and destroy national ‘competitiveness’. Using current economic thinking which has created massive debt and destroyed value to try and address these issues is stupid

  11. Great article. It needs wider distribution and more readers. The bullet points could be a manifesto nailed to the Parliament house and RBA’s doors.

  12. JunkyardMEMBER

    Your kids are too old for fairy tales 🙂

    I mean that with respect though. Good read, thanks!
    I don’t think it’s the “what” but the “how” that is the more difficult question.

    • JunkyardMEMBER

      There is two ways to renovate a house.

      # 1.
      The live-in renovation where you do it slowly, room by room. The Inconvenience is less and the change less abrupt, but you do put up with dust and shit everywhere for an extended length of time. At the end of the day you end up with a result that is okay but never quite right, as workarounds abound and you live with the compromises that will forever bug you.

      # 2.
      Or you can just send in the demolition squad and bulldozers. Flatten most of the site and make way for something much newer. Sure you have to live in your caravan for a while and the change is brutally abrupt. But the end result is significantly better as the destruction create room for freedom of innovation and solutions with less compromise.

      Ultimately which method is best depends largely on how rotten and out of date your house is?
      And I’d argue our house is looking pretty rotten?

  13. With #2 are you aware that savings intended for home purchase have experienced well into negative real returns, worse after tax, for over a decade, due to the hyperinflation of the house prices these savings were intended for?

    Great article & thoughts for debate.

  14. This will flow through to losses in almost everyone’s super funds as just about everyone will have bank share and bond exposures, but it’s the way its gotta be.

    I suspect the wealthy would be largely unaffected by this

    • What do you mean by tank water?

      Vic build a huge desalination plant instead of getting 90% of new houses to have a rainwater tank. And the vast majority of voters are not farmers.

      20% of the people have 62% of the wealth. How many of the 20% are farmers.

  15. I like your thinking Deep T. Unfortunately, most young people appear to be completely decoupled from the political process. My own 3 kids are included despite my best efforts. Because of this, I can’t see them being the source of the reset that is needed.

    My view is Pauline Hanson and her crew of nutters represent the best chance of threatening the status quo among the Laberal uniparty to the point that they will introduce change as a matter of self-preservation. I think she’s a dimwit and she seems to attract crazy people like flies to shit, but you gotta play the cards you’re dealt.

  16. Nice write up. Two issues from me:
    1- if it isn’t a conspiracy, how did Caroll Quigley described it precisely in the 60’s?
    2- your points assume no push-back from the people who has benefited from rising inequity during implementation. In other words, it assumes linearity. If even a single measure is implemented, which won’t, the “elites” will manoeuvre to keep unearned wealth and power adding further instability into the system. Look at the US, the reaction to Trump’s victory and policy positions is making things worse than the implementation of the policies could.

    • Agreed – justice does not come simply because it should.

      Marx was right – struggle is necessary.

  17. Great article Deep.T

    p.s.: I don’t know how you managed bringing up 8 kids! we struggle with one, toddler tantrums are very real. Bring the green bin before the red bin hell breaks loose, stand two feet away from Mrs and not three feet while King is having dinner hell breaks loose!

  18. Overall a great read (don’t think I’ve ever seen such a succinct/clear description of the last 30-40 years), not that I agree with all the points e.g.

    “The people or parliament must decide monetary policy.” – God help us if that were to happen LOL

    Few of the points from the plan are likely to occur, but for those who think otherwise… own gold, lots of gold.

  19. ErmingtonPlumbingMEMBER

    Good contribution to getting the debate around to Inequility MrT.
    The most challenging issue of our times according to Former President Obama,… who went on to do nothing about it.

    I worry for my 2 kids future every day.

    https://m.youtube.com/watch?v=38JNg210L24

    The problem as I see it, within the Western Democracies, stems from the lack of Political parties that staunchly and Unapologetically advocate for the Working people that make up the vast majority of the population and Consumer base.

    How can “Pragmatic compromises” be nutted out between competing interests, when both sides are singing from the same Economic hymn sheet.

    https://youtu.be/mH8FWrbzxEs

    IMHO the ONLY possibility of a reversal of Rapidly approaching Global Plutocracy, is for the Workers/Peoples parties of the world to be retaken by their rank and file and all the Tory lights kick out the Movement.

    Where the hell the leaders of this take over are, I do not know, but without them, we may as well all just learn to bend over and aquiess to our New Feudal masters as techno Serfs.

    https://youtu.be/-7xvqQeoA8c

    https://youtu.be/rVlhMGQgDkY

    Where are the politicians who can stand up like this guy?

    https://youtu.be/IjSTQwamo8M

    “We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

    They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

    Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.”

  20. It’s a solution: I’d call it the South American solution.
    I’m just left asking myself : Can Aussies live with the pain that comes hand in hand with this solution?
    If YES: than we emerge in several years all the better for it
    If NO: than we create both social and financial crises’ that will feed extreme Political instability
    The real problem with recessions is that they create long term social dysfunction, Unfortunately the unemployed 20 something quickly becomes the unemployable 30 something. Any country with a high percentage of unemployed 30 somethings is in deep do-do, very deep do-do. Like it or not, 30 somethings are the most productive assets of any company and any country.
    Many have suggested that the timing of WW2 ,coming about 10 years after the start of the great Depression is not by accident, but rather comes as a direct consequence of the world needing to deal with a huge population of unemployable 30 somethings.

    • Yes it struck me as an easily dismissable scorched earth 1929 type policy. And as you say, such a policy engages completely unacceptable vicious circles.
      I also wonder if we can do anything so drastic on our own to any real benefit. The global monetary system is changing away from the USD reserve currency mainly driven by the insight of China that USD treasuries will be sharply devalued given all their debt and entitlements. The US policy is very probably inflation.
      I vote for a gradualist approach to directly target inequality. Cap the RE bubble with land taxes etc. Introduce death taxes etc.
      To start with, some economists could establish a site in Australia like this one so the argument can be developed:
      http://equitablegrowth.org/equitablog/

      • I’ve read Brad’s blog before and he makes some great points, but it still reads a little like the collective musings of the 1818 society.
        makes me wonder: Has H street found new premises on K street?
        If so than, to what end? Surely H street is more influential than K street….ah but there I go showing my age.

  21. Is this a personal narrative?

    Banker with eight kids and youngest turned 18.

    It ain’t settler days anymore, eight kids narrows it down. You’re close to doxxing yourself with that one.

    • Ah but you’re assuming that this tale is completely true.
      Maybe DeepT is in reality a disinformation source, Or maybe just certain parts of the narrative are intentionally misleading, crafted is you like to send the Doxx’er on a wild goose chase. IMHO Obfuscation is a grossly under-valued skill, we’re all obsessed with the “truth” when in truth an entertaining lie is all that our soul desires.

  22. Good grief. I stopped reading when it was stated that foreign borrowing increases budget deficits. Where did the author study economics?

    • two plus twoMEMBER

      “The offshore borrowings were sugar for the economy as money was injected by budget deficits and housing loans.”

      Deep T didn’t say what you suggest at all, Malcom.

      • Re-read the section you have quoted. That’s exactly what he is saying unless you can translate those words to mean something entirely different. I think what he meant to say was that offshore borrowings created an external deficit (balance of payments) and to confuse a domestic deficit (budget deficit) with an external deficit is why I swung my handbag
        .
        To explain further:
        Government spending less taxation revenue = budget deficit/surplus.
        Exports less imports and financial net transactions (offshore borrowing included) = external deficit/surplus

        Understand?

    • two plus twoMEMBER

      Ahh you’re right. Sorry, I read what I thought it should’ve been, not what was actually written.

      “The offshore borrowings were sugar for the economy as money was injected by budget deficits and housing loans.”

      I think what Deep T meant (and how I read it) is:
      The offshore borrowings were sugar for the economy as was money injected by budget deficits and housing loans. (‘was’ moved to earlier in the sentence). That is, offshore borrowings + deficit spending + housing loans all were used as sugar hits for the economy. That’s how I interpreted it anyway…

      • two plus two

        Thank you re your explanation to Malcolm I find the whole free money thing appearing all the time as very frustrating.
        Government deficits abd housing loans have been sugar for the economy. When you run a budget deficit it has to be financed – the money flows through the economy and ends up in the external account – one way or another eventually. Same with housing loans. In a different productive economy we might get a different outcome but not this one. So as this money flows and ends up as imports they have to be financed and they are financed, as they must be, by foreign borrowings or asset sales to foreigners. It’s a flow outcome Deep T, unlike most of his cohorts around MB, has this one exactly right.

  23. Unconvinced. I reckon that just gets us to doom faster:

    1. Crush asset prices.
    2. Destroy the banking system through bad debts and enforced debt forgiveness.
    3. Banks are now illiquid and insolvent. Get the government on the hook for all the depositors.
    4. Everyone’s super just took a 70% hit through land value and stock market declines. Get the government on the hook for all pensions plus.
    5. No-ones building houses or anything else now so get the government on the hook for all the extra welfare.
    6. Sell anything that’s not nailed down to pay for it all.
    7. Sold it all so now print money. Hyperinflation!
    8. Don’t worry, some one – left or right, it doesn’t really matter – has an easy solution.
    9. Welcome to Venezuela Mk II ! Riot, eat the zoo animals to not starve, etc.

  24. Change is going to come, but not like this. Better to prepare for greater inequality, to ensure current safety nets are sustainable, that citizens are not strivers but engaged in their own interior pleasures.

    Some are going to to do very well, owners of capital, signifcant artistic abilities, those possessing superior intellect and ability to carve niche for themselves. These rest. A more gloomy economic prognosis but hopefully immediate needs met and wants channeled into activities that are inherent self satisfying, absorbing and diversional.

  25. *Standing ovation*

    An excellent synopsis Deep T and a great list of suggestions.

    If the kids have time to read, I recommend this to them: https://www.amazon.com/Rise-Fall-Neoliberal-Capitalism/dp/0674725654

    It covers the multi-decade transition that you speak of, just another generational change in ideology. It seems clear now that a new generational ideology is rolling in. My hope is that it will be an improvement: open and regular dialogue, sensible protectionism, healthy nationalism (what the EU was originally supposed to be). My fear is that it will degrade into toxic nationalism and that the wealthy will end up sending the young off to die en-masse in their wars (again), only to be displaced when the monster they unleash proves uncontrollable.

    History sure does seem to be repeating unfortunately. A period of unchecked liberalism leading to vast wealth inequality that ultimately causes financial crisis and begins the path to war.

    If we, as a whole, do not intervene wisely then well-defined stages of collapse await us.

    Stage 1: Financial collapse. Faith in “business as usual” is lost.

    Stage 2: Commercial collapse. Faith that “the market shall provide” is lost.

    Stage 3: Political collapse. Faith that “the government will take care of you” is lost.

    Stage 4: Social collapse. Faith that “your people will take care of you” is lost.

    Stage 5: Cultural collapse. Faith in “the goodness of humanity” is lost.

    https://www.amazon.com/Reinventing-Collapse-Experience-American-Prospects/dp/0865716854

    Depending on the dominant ideology of the society undergoing collapse, spiritual collapse can also be added, as a component of stages 3-5.

  26. Anyone who has 8 children can’t be taken seriously!
    Especially with all the contradictions in this article. But al least it got some people thinking . . .

  27. Hegel had it worked out hundreds of years ago.

    Thesis->Antithesis->Synthesis

    Globalisation, debt creation, high immigration into the West, Cultural Marxism, bubble economies etc are all part of the thesis – the road to hell that was paved with good intent, the failed experiment.

    Trump, Pauline etc are the start of the antithesis. War, total market crashes, extreme civil unrest – take your pick. It’s the hell end of the road. The bushfire needed for regrowth. Ancient Greeks called it the Apocalypse, which simply meant an unveiling of the truth.

    The truth is synthesis – after all the blood, loss and tears we work it out, for a while. We realise that greed is not an appropriate value system for social cohesion and that individuals are less important than the societies they exist in. We start to build something positive again.

    This has happened time and time again, over and over, throughout human history. We seem destined to never fully rise above the limitations of our natures.

  28. I am wondering what you might say to your 20 year old self. Would you have wanted to bring 8 children into the current world if you had known how it would evolve?

    Looking around, we see that rapid population growth underpins a lot of the ills you define, which manifest as symptoms of the pressure arising from too much consumption, driven by adding 1 billion people globally every 13 years and in the case of Australia, adding 5.5 million people in just 17 years.

    Over and above the crooked and distorting systems that you describe (GT & NG) surrounding the debt market, the fundamental cost of building services for that many people cannot be funded from recurrent income. However, places like Japan and Denmark do not have to spend precious public funds to build more hospitals, universities and schools, because their populations are stable or slightly falling.

  29. “Debt driven asset inflation is one source of wealth inequity and the other, as I described, is the devaluation of labour.”

    And the crux of this inequity is … drum roll … the fractional reserve banking system (in tandem with Central Banks). A real shame that MB doesn’t acknowledge this, but if you don’t acknowledge this, you’re wasting your time.

    Sound money is the key to ending boom bust periods and the egregious inequality we are witnessing.

    No other solution exists. if you think otherwise you’re destined to run around in circles proposing baseless solutions till the day of your death.

    • Sound money is a big part of it. I also suggest that fair distribution of natural resources is important. Think about it.

      • It’s a tricky issue for sure and a problem that wouldn’t exist if all land were privately held. But that’s not the case, so instead what you have is a situation where private individuals procure State land and assets at beneficial prices/terms. Why can’t the government ever get this right? Because it is either incompetent, corrupt or both. There is no incentive for public sector employees to get the best deal for the taxpayer – they have no skin in the game. In my life I have never heard of an instance where a public servant has been sacked for not optimising an asset sale or f#cking up a procurement exercise (military equipment, typically). Where is the incentive to bring this in on budget? They have an ‘inexhaustible’ supply of tax-cow funds to play, so who cares.

        Given that the minerals exist in the ground ‘belong to the country’, should a State-run enterprise be mining all of it and putting the proceeds into State coffers? Sounds like a great idea, except, you find yourself with the same issue i.e. the people running the show have no incentive to optimise outcomes (maximise revenues and minimise costs) so you could easily end up with a situation where there are no profits to put in the State’s coffers — so net, net you end up worse off: the Chinese get our minerals and the tax-payer gets bugger all benefit (True, a few more Aussies would have jobs in the bloated state mining sector, but that’s about it). Legacy wasted.

  30. Drop interest rates hard into real and nominal negative territory

    So negative interest for bank depositors.

    Good luck with that.

  31. Any tax concessions that favour housing investors over owner occupiers, i.e. negative gearing and CGT discount are to be removed

    Actually, owner occupiers have the bigger CGT discount (100% instead of 50%).

  32. ‘Net immigration is reduced to a manageable 0.4% of population per year.’
    I’m not sure that having a fixed percentage of a growing population is the best way to tackle it.

  33. Even StevenMEMBER

    Terrific, post Deep T. Agree with nearly all, and what little I don’t is still good food for thought.