Domainfax goes all in for population ponzi

By Leith van Onselen

After open borders extremist, Peter Martin, penned an article earlier this month hailing the “powerhouse” Sydney and Melbourne economies, his Domainfax colleague, Matt Wade, has repeated the dose hailing the “creative class” descending on Sydney and Melbourne:

Big cities across the globe are thriving and Australia’s twin urban giants – Sydney and Melbourne – are no exception. They contributed more than two-thirds of the growth in the Australian economy last financial year and together accounted for about 44 per cent of the nation’s economic output.

In the past decade, Melbourne and Sydney have added 1.75 million people – close to half of the nation’s population growth in that period. And their economic and demographic dominance is likely to grow.

…financial services and professional services – now account for 25 per cent of the Sydney’s economic output and 21 per cent of Melbourne’s. Other knowledge-intensive industries including business services, IT and education (especially in Melbourne) have helped drive growth. These firms are increasingly clustered in the vicinity of the CBD and employ some of Australia’s most productive workers…

Big cities offer things other than employment that are increasingly in demand, such as high-ranking universities, top restaurants, entertainment venues and cultural institutions like museums…

Despite high housing costs, big cities remain a magnet for overseas migrants. Net overseas migration in Victoria and NSW reached all-time highs last financial year and a big share of those new arrivals headed for Sydney and Melbourne…

The economic dynamics favouring big cities are self-reinforcing… As these people share ideas, raise capital and start businesses it stokes demand for even more jobs and amenities. In turn that attracts even more ambitious, well-educated people. It is a cycle that promises to compound the advantages of big cities over time.

Matt Wade and his colleague Ponzi Pete Martin seem to believe that never-ending population growth (immigration) and the associated services and infrastructure spending that it generates is some kind perpetual motion machine. That is, Australia can just keep importing migrants and building infrastructure and housing for them, as well as selling them coffees and mortgages, and the economy will remain strong.

This argument completely ignores the corresponding blow-out in the current account deficit, as well as the escalation of debt, that accompanies such an economic model. It also only considers the economy in aggregate, not on a per person basis, and takes no account of the deleterious broader impacts on living standards.

As I noted earlier this month in my demolition of Ponzi Pete, Sydney and Melbourne have become economic “parasites”.

Neither city pays its way in a trade sense – i.e. their exports are not paying for their imports. This was made abundantly clear by the annual state accounts, which showed the gaping trade deficits that have developed over the past 15-years just as immigration into both cities was ramped-up:

This has led to both cities becoming economic suckholes:

Both Sydney’s and Melbourne’s economies are highly reliant on the population ponzi/housing bubble, each of which requires the accumulation of more imports and debt, and a deteriorating current account balance, rather than genuine sustainable growth.

Australia’s rural and regional areas, by contrast, provide us with not only our food, but also the lion’s share of the nation’s export revenue, which is effectively what pays for Australia’s imports (consumed mostly by city dwellers in Sydney and Melbourne!):

Of course the FIRE and construction sectors located in Sydney and Melbourne love this Ponzi growth model because they make more money (e.g. selling mortgages), which helps to explain the FIRE sector’s explosive growth:

But for ordinary residents located in both cities, this Ponzi growth model is unambiguously negative. Every year, the infrastructure deficits in both cities, along with congestion, housing affordability and overall liveability has gotten worse as more and more people (mostly migrants) have flooded into each city and pushed against bottlenecks amid woeful planning. And the official projections are for both Sydney and Melbourne to experience explosive population growth (immigration) ad infinitum.

The situation is particularly bad in Victoria (read Melbourne), where per capita real gross state product and gross state income have barely increased since the Global Financial Crisis:

Sure, NSW (read Sydney) has done better on these measures, but it too has some serious problems. In particular, the unprecedented flood of migrants into Sydney, and the associated rising cost of living (e.g. housing) as well as the crush-loading of living standards (e.g. infrastructure), has led to incumbent residents fleeing the city as well as a crashing birth rate:

And who could blame them when the cost of a dwelling in Sydney has rocketed to insane levels:

Driving the home ownership rate for those aged under-40 through the floor:

With the proportion of households thrown onto the rental market growing massively:

And more than half of lower income households in ‘rental stress’:

So basically, incumbent young Sydneysiders have been forced to move from where they grew up just so they can make way for the 70,000 to 100,000 migrants flooding Sydney each year!

Both Sydney and Melbourne are operating Ponzi economies that are growing for growth’s sake via mass immigration and debt accumulation, in turn pushing against infrastructure bottlenecks and reducing the living standards of incumbent residents via rising congestion, reduced amenity, and deteriorating housing affordability.

It is precisely the wrong kind of economic model that Australia should be facilitating: one that places headline growth ahead of improving productivity, sustainability and per capita living standards. And one that sucks financial resources from the other states in order to support Melbourne and Sydney’s bulging populations.

Both Peter Martin and Matthew Wade have drunk the Kool Aid in becoming ponzi growth cheerleaders. Bring back Tim Colebatch.

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Unconventional Economist
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  1. The economic dynamics favouring big cities are self-reinforcing… As these people share ideas, raise capital and start businesses it stokes demand for even more jobs and amenities. In turn that attracts even more ambitious, well-educated people. It is a cycle that promises to compound the advantages of big cities over time.

    The future is a Heath Robinson Machine! These journalists must be geniuses.

    • So it’s positive feedback and we know what happens with positive feedback system – they always crash (ask engineers or process control people).
      It is true that the economic dynamics favouring big cities are self-reinforcing, but that also makes them self-diminishing:
      Once small number of these people (for any reason) stop sharing ideas, raising capital and starting businesses the demand for even more of like jobs and amenities will diminish and that makes even more ambitious, well-educated people to stop sharing ideas, raising capital and starting businesses. The best of them leave, others suffer in debt (keep in mind, these positive feedback economic systems always feed on credit money)

      • WW-engineer, mechanical, electrical, if you want to see how this will end in the short term, try sticking a heap of partygoers on to a balcony, all attracted by the need to socialise and share ideas, until the balcony collapses.
        Dr X Is correct, in engineering speak, positive feedback amplifies changes; to progressively move a system away from its equilibrium state, until it blows up or collapses.That is the engineering diagnoses of what is going on.
        The cure is to cancel, open circuit, mute the signal, or blow it up.(usually preceded by a runaway)

    • This calls in to question the entire New Economic Geography.

      There is in fact no evidence at all that cities in general are more productive. What there IS evidence for is higher incomes of metropolitan dwellers. But net value of production does not equal income. It equals income LESS economic rent LESS the deadweight losses attributable to the rent-seeking.

      The questions one should be asking are:

      a) “Why is an increasing proportion of Australia’s population squeezed into the State and Territory capital cities?”

      b) “Why are cities like Newcastle or Mackay or Townsville not vast metropolises?” and

      c) “Why does the proportion of the population in and around the capitals increase even as the population increases (contrary to the ‘critical mass’ hypothesis of city formation)?”

      The answer lies in Australia’s Westminster system of “elective dictatorship” combined with the phenomenon of “proximity bias”.

      Proximity bias is a cognitive bias that causes people to favour and reward those who are physically proximate. See, for example, “Out of sight, out of mind. People who work from home are less likely to be promoted”, The Economist, 13th October 2012. (

      Under the Westminster system – with its generally supine Legislature – the Cabinet has vast discretion to disburse economic rents to the Ministers’ favourites. Combined with the proximity bias this creates a powerful centripetal force drawing people in towards the “Fountainhead of Rents”, the Cabinet. Proximity to Cabinet is a “positional good”.

      This phenomenon has been known to historians (but apparently not economists) for centuries. It is the reason that Courtiers had to remain at Court. Absence from Court was a death sentence.

      With the evolution of Absolute Monarchy into the Elective Dictatorship of the modern Westminster system, this effect has not gone away. Court has simply been replaced by Cabinet. Ministers reward those modern-day courtiers – the “primary rent-seekers” – who are physically proximate. Primary rent-seekers need to live within “lunching distance” of the Cabinet.

      The elevated incomes of the primary rent-seekers draws in a second circle of “secondary rent-seekers”, who in turn draw in further circles, the ripple of rents radiating outwards from the “fountainhead”.

      This realpolitik model of metropolitan rent-seeking undermines the naive (and transparently self-serving) theories of economists like Ed Glaeser who argue that cities come into being because of agglomeration efficiencies and should even be subsidised to promote that efficiency.

      To be sure, SOME cities will form due to agglomeration efficiencies. The paragon of this type of city is Silicon Valley where the planet’s highest concentration of intelligent individuals – sharing ideas – are literally re-designing the world we live in. And making fortune.

      But the mistake lies in generalising from the particular. Intuitively one might expect that where Executive government has wide discretion (as in the Westminster system) power and wealth would concentrate around that Executive, whereas in those countries with a more powerful Legislature (for example the US) agglomeration efficiencies would prevail.

      We can see the effect in the UK where far-and-away the largest per capita recipient of identifiable public spending (excluding social welfare and agriculture) is not Scotland or Northern Ireland as one might imagine, but London! (

      Of course, the metropolitan apologists argue that Londoners deserve more being spent on them because (as everybody knows; just ask a Londoner) they are the clever, virtuous, hard working (shall we throw in “good looking” as well?) people who “create all the wealth”. Just look at their high incomes!!

      But this is a chicken-and-egg argument. Do Londoners deserve lavish spending because they generate wealth, or are they wealthy because the government lavishes spending on them??

      To give an example, as a child I lived about a mile from Lord’s Bridge Railway Station, the first stop outside Cambridge on the Cambridge-Oxford railway (the so-called “Varsity Line” or “Brain Line Railway”). The Varsity Line was spared the Beeching Axe in 1963 but you won’t find Lord’s Bridge Station on modern maps. That’s because in 1967 the government decreed that money should be dedicated instead to improving the speed of services into and out of the political capital. To go cross country from Oxford (or further south and west) to Cambridge (or further north or east) one would travel to Paddington, cross London by Tube to Liverpool Street, then resume the train journey.

      On 31st December 1967 the Varsity Line was closed, the infrastructure dismantled, and the track bed meticulously ploughed back into the farmland.

      Fifty years later the policy of concentrating traffic through London has necessitated the 18 billion pound Crossrail Project to ease the congestion!

      But hey!! That 18 billion pounds increases the incomes of Londoners, thereby “proving” how productive they are!

      Isn’t economics wonderful??

      Meanwhile back in Australia, we have metropolitan rent-seeking at every level:

      a) at the State level, mineral royalties prop up Brisbane and Perth;

      b) top class health and education facilities are concentrated in the capitals;

      c) arts and sports funding is concentrated in the capitals;

      d) lucrative public works contracts are handed out to Mates in the capitals;

      e) at the federal level, company tax on commodity exporters is disbursed – largely per capita – to the capital cities;

      f) special imposts such as fuel excise act as a “tax on distance”, sucking money out of the regions (and even from the poorer outer suburbs which rely more on car transport) to be disbursed to the capitals;

      g) specific industry protections inflate metropolitan incomes. The policy of mandatory superannuation (for example) is now diverting over $30 billion a year into the hands of Sydney and Melbourne funds managers and their support industries. But just because thousands of people are running around in circles complying with the red tape of a needlessly inefficient pensions system does not mean that they’re producing anything of value. It is properly accounted for as part of the deadweight loss of rent-seeking: a pointless mis-allocation of resources that exists only so that politically powerful rent-seekers can divert income into their pockets; and

      h) the acceptance of oligopolies in major (metropolitan) industries further increases metropolitan incomes.

      And because of all those people crammed into the metropolis, trying to be within “lunching distance” of the Cabinet, we see projects like the $17 billion WestConnex which cost more to build that a green-fields city somewhere else!

      But hey!! That $17 billion increases the incomes of Sydneysiders, thereby “proving” how productive they are!

      Isn’t economics wonderful??

      (I have written to Fairfax pointing out the errors in their articles but they have no interest in such heterodox views.)

      • Very good points. As Jim Hacker famously said: “One week, you’re out of your office. The next week, you’re out of office!”.
        Newcastle is growing quite quickly, not sure about Mackay or Townsville. In my opinion, fast and reliable train services are a big factor in successful decentralization. We should be looking to continental Europe, not Britain, as an example.

      • SM why dont you rewrite that so it is relevant to the future, rather than the past.
        Apart from HFT algos, AI and robots dont care about proximity.
        the Future is for AI robots, so what happens then
        Where does amazon have its local warehouse, that is the future
        Lowry saw the big picture and bolted.

      • Critical decisions are still made by homo sapiens. And they still display proximity bias.

        One doesn’t do political favours or business favours for a person one has spoken to over the phone or corresponded with by email.

        One does favours the person with whom one has dined privately, whose children or grandchildren attend the same school, or who play on the same sports team.

      • SM, mate you are livin in the past. Your tie is well over
        How about RIO automating its full ore haulage fleet
        Who knows where it will be operated from, some say Perth Airport.
        Note they need to do that to compete with the full auto fleet of Vale.
        Where will taxis park when they no longer need drivers??
        Cities are gunna need many more parks so humans can live under trees.
        this march of the 4th ir is going to be relentless and merciless toward humans.

      • “Who knows where it will be operated from, some say Perth Airport.”

        Precisely!! Within “lunching distance” of the State Cabinet, the Fountainhead of Rent from which the favours flow.

  2. “creative class”

    they’re creative alright. here are some of the things that these migrants create:

    -dominos pizzas
    -traffic congesion
    -carbon emissions
    -high house prices
    -infrastructure bottlenecks
    -ethnic cuisine

    • the difference between saying *excessive migrants* and *migrants* in your statement would make a world of difference.

      Unless you’re aboriginal.

    • Like fluoride in drinking water. If a tiny amount of fluoride is good for dental health – why not get tap water to consist of 50% fluoride!

      • Ouch!
        (in a good way)

        Jacob, wholeheartedly agree for the first time.
        saying immigration create problems is like saying fluoride creates problem.
        Saying *excessive immigration* creates problem is well explained above, by you.
        One of these is xenophobia. Other is not.

  3. What about university reform:

    The “unis” are squealing like pigs of course:

    “The decision to uncap student places in Australia was an historic reform that lifted skilled graduate numbers to meet Australia’s labour force needs

    Absolute garbage! You either give the jobs to 457 visa staff or you give them to Aussies/Kiwis. Given that wages have been shrinking for the last 5 years, the jobs are obviously going to 3rd world males willing to work for illegal wages – in that case, why pump so many Aussies through “uni”?

    • From 2020, growth in university funding will be based on performance, with Senator Birmingham eyeing higher completion rates, student satisfaction ratings and job outcomes as the key criteria.

      Hallelujah! Job outcomes! Why did not the LNP slash uni funding earlier?

      Uni funding should be linked to the salaries that the graduates of that uni command. Better yet, require students to be selected at a job interview before being given taxpayer funding for a “degree”.

      • Better yet, require students to be selected at a job interview before being given taxpayer funding for a “degree”.

        Yeah, because the return to a class-based caste society just isn’t happening fast enough already, we should start chaining people’s lives to decisions they make as teenagers, and dependent on their ability to attract a patron.

        Nothing must get your blood boiling more than a rags-to-riches story. Why can’t the poors know their proper place and be happy with it !

    • @Jacob
      Ironically universities are churning out halfwit graduates with life time debt and they know little about anything outside of SSM and Tran abclbqti issues

  4. I predict cities to “die off” in next 50 years – their un-livability, high prices and perceived terrorism threat (no mater how fake it is) is going to push first rich and than everyone who can out leaving cities for poor people without choice.
    This already happened in first half of 20th century, and numerous times before.

    • Than in essence is what Murdoch said to Lowry. And Lowry sold out.
      Wonder what they are saying to Highrise Harry?
      This internet thingy has ruined the centralising benefit of a city and turned that against itself.

      • Yes, the internet is fabulous.
        I’ve literally done my job trading a few billion from the comfort of my study.
        Once people can work more than 2 days a week out of the office then the need to live in a city quickly diminishes.
        I’d like to move to the country myself, but can’t get my wife on board just yet.

  5. The Horrible Scott Morrison MP

    It’s up to the States to get their fingers out and build roads, schools, hospitals, power stations, de-sal plants, high rise apartment blocks, light rail, heavy rail, mono rail, underground rail, bridges and tunnels. I mean what’s so hard about that?

  6. Bloggers , where is the article about the super for housing changes that have already passed the Senate ?

  7. Everything discussed above looks ‘wage deflationary’ record immigration with higher paid construction jobs coming off, but rents and mortgages gotta be paid.

    However the neo-cons seem unable to envisage the possibility of population ponzi going into reverse as it appears to be in WA NT and SA.

    I repeat, when the work dries up the immigrants will return home and ‘try’ to sell their properties, and if underwater then they will disappear. We will also discover what has motivated foreign students to come here? Perhaps the lure of being able to speculate on property with minimal risk to themselves through use of fraudulent borrowing application was a big attraction.

    There are many lessons that we must learn in the unraveling of this interdependent ponzi system, upon which, it seems everything depends.

    • It seems especially noteworthy in this context that record NOM to Sydney and Melbourne has failed to prevent RE prices from slowing noticeably in both, to the extent that Sydney prices are actually falling .
      The process that will lead to the tide going out very likely has already started.

  8. That Matt Wade article essentially states: if you don’t leave in Sydney or Melbourne you’re an ignorant simpleton.

  9. Here we see the myth of the free press at the corporate level, hence the nickname DomainFax. News and opinion blatantly and brazenly supporting its business model.

  10. So the cities offer top restaurants, entertainment venues and museums? That sounds like a fancy way of saying bread and circuses.

    • a million bucks for a house and hours each day sitting in traffic are a small price to pay for being able to go to the theatre a couple of times a year….

      • If someone was to start some sort of communication system – could be a website – that allowed people with apartments in the city to rent them out to people in the country for one or two nights at a time, then the people in the country could have the entire advantage of living in the city ( the ability to visit the theatre a couple of nights a year) with none of the nuisance (time stuck in traffic etc)

  11. I think the role of cheap money in this is not sufficiently discussed.

    As well as facilitating ridiculous rises in real estate close to CBDs, cheap money also funds the creation and sustainment of start-up businesses that are not commercially viable. When the tide runs out on cheap finance, my bet is that many of the emerging tech businesses will go out of business and with them will go the ‘halo’ effect the original author seems to love so much. This will also crater the CBD RE and we’ll be looking at a brutal crash.

  12. Not just population ponzi, but Matt Wade has become a defacto spruiker for consultants SGS (specifically Terry Rawnsley) of late. Wade doesn’t even attempt to establish a premise for his articles before weaving the SGS research in (as others e.g. Gittins does) with external work.

  13. The 1989 version of Batman, where Jack Nicholson as the joker, has infamous quote “This Town needs an enema”, and certainly Sydney needs one!

  14. I applaud the MB focus on “primary economic income”. This can be “services” and weightless “products” like digital downloads but it is nonsense to make this kind of primary economic income synonymous with utopian urban planning and exclusionary-rent CBD’s.

    In fact it is lunacy to forego the wide variety of kinds of primary economic income that exist – you can’t guarantee that the ones you pick and choose will be the winners that support your economy. Australia’s current policy has the illogic that it uses land for farming and exports bulky low value product that every country in the world would rather grow locally, and it also kids itself that it will have Wall Streets and Internet Giants – but it can forego everything in between by making urban land rent too expensive for, say, manufacturing.

    Essential remedial reading for policy makers at all levels: “The Flow of Money: How Local Economies Grow and Expand” by William Fruth:

    • Thank you Phil, i think you or someone else here posted that .pdf a long time ago and I’ve been trying to track it down since. It is a very useful document.

  15. Keep it up Leith. Slowly but surely you’re winning the argument, along with the hearts and minds necessary to win politically. Fissures are opening up on the conservative side, with the rank and file breaking from the BCA / ponzi beneficiary elite. The next leg is finding a foothold in the Labor/Green alliance. Maybe Troy Bramston would be worth talking to. He seems like a traditional Laborite with the best interests of workers (rather than their remote, identity politics driven, overseers) at heart.

  16. Geelong is going gangbusters, we will have a 25% population increase in the next 5 years, mainly from Melbourne and there is no way the infrastructure will keep up. In every direction you look there is a new estate being built and the civil contractors are booked out for months in advance with everyone wanting the next stage of the estates started! Much pain to come when it turns, if it ever does?

  17. Seems to me that Peter Martin is desperate to show he’s not racist. Surely he doesn’t really believe it’s so great for everyone here to have massive immigration flooding our cities on a constant basis?