Experts

For F* Sake – Take the Govt Out of the Economy!

November 1, 2018 by Jon Giaan

More elder statesmen are calling for a return to the state. I’m not backing them.

It seems that neo-liberalism is on the nose.

It used to be all the rage in policy circles. In a nut shell, it was the idea that the market, not the government, was the best way of organising activity, and so as much as possible, the government should get out the way and let the market soar.

But now neo-liberalism is on the nose. And it’s not just unwashed arts majors in cafes any more. The elder statesmen of Australian policy are also taking their shot. Like former Treasury Secretary and Reserve Bank Governor, Bernie Fraser:

Neoliberalism has caused “misery and social polarisation” yet remains in vogue with the Coalition government, according to the economist Bernie Fraser.

In the background notes for Fraser’s speech, seen by Guardian Australia, he says that Australia’s 27 consecutive years of economic growth is a “standout”, “Winx-like” performance.

But the record deserves only “qualified applause” because “too many Australians remain unemployed, under-employed, underskilled, underpaid and lack job security”.

Fraser warns that society has become “less fair, less compassionate and more divided” and “more devoid of trust in almost every field of human activity” in the past 20 years.

…Fraser in large part blames neoliberalism and its influence on policymaking for the “disconnect between Australia’s impressive economic growth story and its failure on so many markers to show progress towards a better, fairer society”.

“Favouring the market system ahead of the state system, and individual interests ahead of community interests, can lead to profoundly unfair social outcomes.”

I think Dr Fraser has the symptoms about right, but I’m not sure I agree with the diagnosis. And I certainly don’t think a swing back to the state is the remedy.

Because we’re not just talking about whether the government should do something or whether private enterprise should do something. It’s just not as simple as that.

What we’re talking about is the concentration of power.

And where power concentrates, that power starts directing benefits into private hands.

So take the Australia experience. I’d probably agree that we’re becoming less fair, less compassionate and less generous as a society.

But is that because government got out the way and let the market do its thing?

Or is it because it got in the way, and started developing policies that gave certain groups and certain individuals massive free kicks?

Is it because major parties stopped believing in or standing for anything, and started seeing political power as purely an end in itself?

Is it because our politicians started playing industries off each other, creating largesse and consultancy gigs for whoever was donating the most to their campaigns?

Is it because politicians started tilting the rules in favour of big business, so that now we have one of the most concentrated economies on earth?

The way I look at it, the problem is that there is too much government in the economy, not the other way around.

The way I see it, the government can play a useful role as an umpire in the game. Once the rules of the market are agreed on, the government can be there to enforce those rules. That increases trust in the game and you get much better outcomes.

But the government should not be a player in the game.

And it should definitely not be a player in the game who is actually pretending to just be an umpire, giving random free kicks away to its mates.

And that’s what I think we have now.

So yeah, Bernie, I’m hearing you. I think on a lot of fronts we’re moving in the wrong direction.

But we have to make sure that our cures are not worse than the disease.

The property mob will have the last say…

May 4, 2017 by Jon Giaan

When you add it up, property has more friends that any other asset class in the school-yard.

Here’s a joke I just made up:

What’s the difference between democracy, and mob-rule?

Democracy takes longer.

(These blogs are mostly about me living out my comedian fantasies.)

Note that mob here doesn’t just mean a majority of people. It’s also in a ‘organised crime syndicate’ kind of way. Like the mafia, the mob.

Mob rule is not just about who has the numbers, but who has the most pitchforks.

Australia is a good example of mob rule. It’s enlightened mob rule, in the sense that we’ve largely replaced pitchforks with political donations, but the effect is much the same.

Whoever has the power, makes the rules.

If you don’t like it, the mob generously gives you the right to complain about it. Blogs are free.

Not that I’m necessarily complaining, and in this particular case I think the mob has my back.

A few people have written to me after last week’s blog, genuinely worried about what a Labor government might do to property prices.

Labour says they want prices to fall. They’ve got policies that will make them fall. So there’s a good chance they’ll fall right?

Well, maybe. But my first instinct is to check in with the mob. Where does the mob stand on this issue?

Oh. The mob doesn’t like it.

The interesting thing about property, and one of the reasons it’s always been central to my wealth creation strategies, is that everyone wants to see prices rise.

Always and forever.

Since the end of the gold standard (and probably the fall of Rome), our economy has been nothing more than a social construct. The economy worked because we agreed it would work.

We gave governments a monopoly on violence and the ability to print money. We all agreed not to question whether that useless bit of paper was really worth anything, and it all just worked fine.

And mostly that’s because everyone’s got an incentive for the system to keep working. It feeds us, gives us pretty things. It’s a lot better than what most people imagine is the alternative.

There is a consensus that the piece of fiction we call the economy is real, and so, for all intents and purposes, it is real.

When I look at property, I see the same thing. Sure, some of it rests on shaky foundations (like fiat money!), but all in all we like it.

And much of its momentum is because no one has an interest in seeing prices fall.

Take a look around Australian society, and ask yourself who has an interest in lower prices?

Definitely not mortgage brokers or real estate agents. They’re paid on percentage commission, so price falls mean a pay cut.

Not the banks. They’re paper wealth is built on mortgage lending. They have no interest in seeing their business model disintegrate.

Not investors. Their wealth and capacity to grow their portfolios leverages off the value of their holdings. No incentive to see that fall.

Not owner-occupiers either. That’s the nest egg we’re talking about, if they haven’t already drawn out the equity to spend on other things.

And not politicians, despite what they say. Take a look at the property holdings of Australia’s parliamentarians:

96% of our pollies own a property, compared to 50% of the general population. Half of them own an investment property, compared with just 10% of the general population.

And they tend to own multiple properties. The average Coalition member owns 2.8 properties. The average Labor member owns 2.1.

So how much personal incentive do these politicians have in lower house prices? Not much. It might be good politics but it won’t be good for their personal wealth.

(And which one will win out at the end of the day?)

And since you can’t short-sell property, pretty much the only segment that has any interest in lower prices is first home buyers. They’d like houses to be cheaper.

But let’s do the maths.

In any given year, about 100,000 first home buyers buy their first place.

Currently about 8 million Australians own property.

That’s a ratio of 80:1!!

That’s what mob rule looks like, even before you add in the collective weight of the banks and the politicians and the entire property and building industry.

So when I hear all this talk that politicians are going to hit prices on the head, I’m pretty sceptical.

Any political party that did that would be going against the mob, and going against their own personal financial interests.

Maybe I’m a cynic, but I just don’t see that happening.

The balance has been shifting a bit recently – with more baby-boomer parents realising that they’re on the hook for their kids’ houses. That’s starting to shift the equation a bit.

Suddenly there’s a new class of home owners who would prefer that houses would be cheaper so they didn’t have to give more of their own retirement funds to their kids.

But even then, I think this is likely to be fairly short-sighted. They want their kids to have a cheap house, but they wouldn’t wear a price fall in their own home’s value.

All this is why I tend to be fairly relaxed about any fear-mongering in the property market.

You might say that a social–construct isn’t much to hang your hat on. But in the modern economy, that is literally all we have.

And the mob much stronger than you think.

Feel like the mob’s got your back?