There is no agenda for Australian youth

Intergenerational theft

There has been much talk in the last few weeks and months about intergenerational fairness, in part because of the release of the government’s Intergenerational Report, which predictably details what young Australians already know: we have been shafted over the last two decades, and face an economic future much tougher than that experienced by our parents’ generation. The government’s report will identify the massive challenges ahead for our economy and indeed the very foundations of the social contract that we came to take for granted in the modern pre-global financial crisis era.

As detailed in my last post and the recent Grattan Institute report entitled ‘The Wealth of Generations‘, we have seen that for the first time since the Great Depression, this generation enjoys lower living standards than the last, as the long assumed inevitability of narrowing wealth inequality has reversed course in the last few decades, in particular since the GFC, and primarily thanks to our obsession with housing speculation and the resulting land price inflation. In announcing the report’s politicised findings, the Abbott government has predictably and falsely focused on a legacy of public debt as the “intergenerational theft” that we must be rescued from. But this narrow ideological perspective is of course complete rubbish.

As pointed out by many economists and commentators, though largely ignored in the mainstream, the intergenerational theft that is the legacy for Australian youth is not public debt, it is the mountain of private debt that is at the heart of our new banana republic. Like most countries in the wealthy industrialised West, we can no longer claim to have a mixed economy, with Australia now exclusively representing the resource rich, de-industrialised, finance driven, debt riddled, plutocratic Ponzi scheme that we built ourselves over the last two decades in service of the baby boomer generation. A two-horse political-economic system that “made way for mining” and massively gambled on inflated land prices has driven up the cost of everything in the economy, and the currency along with it, to the point where our own economic “success” has put us out of business, and made us grossly uncompetitive and unproductive. We have an extreme form of Dutch Disease that will be immortalised as the Aussie Ailment in future legend.

We no longer make things. Rather, through the harvesting of barely taxed mineral wealth and singularly unproductive speculation on land prices, we extract economic rent from the ground we walk on, privatising the value of community endeavour and public infrastructure around us, while diminishing the common wealth and leeching the real economy of productive capacity and value in order to enrich the few at the expense of the many. In this respect, the only difference between Australia and other backward economies, is that instead of the only beneficiaries of our system being a tiny ruling elite, the landed-gentry have also assumed the role of oligarchs, hoarding the wealth extracted from the land and the commons in something more resembling feudalism than social democracy.

Our feckless leadership and media now exist almost exclusively to maintain this teetering economic structure, and to convince us that we are exceptional, that we have a world class economy, and that rent-seeking is the natural order of things that will enrich us all. They serve this end above all else because they are literally on the payroll of the housing sector, with the big finance, real estate and development industries funding the activities of political parties and generating profits for print media. The ICAC proceedings in NSW last year proved that the primary sources of corruption in our democracy are the many and varied interests that circle land, its development, and the capture of its naturally increasing value in windfall gains to private ownership and corporate profits. It is also true that the only remaining profitable sector of large print media is real estate advertising. How can we therefore trust politicians and mainstream economic journalists to speak truthfully about our banana republic, when effectively they are all now in the real estate business?

Our broken economic model, the tragedy of youth

I’ve been saying it for a long time: there is no budget emergency, but there is an economic emergency, which in the near future will likely become a budget emergency, an unemployment emergency, an income emergency, a deflation emergency, and of course a housing market emergency followed by a possible financial emergency, as the once-in-a-century commodities boom unwinds and lays bare the harsh reality of our economic fundamentals (or lack thereof). The mounting challenges faced by our economy are structural in nature, not cyclical as usually argued by the body politic and the cheer-leading economic press.

It is not confidence and a balanced budget that our economy lacks, it is a means of generating viable, competitive and sustainable economic activities outside of mining, housing and banking. We literally bet the house on an assumption of endless demand for rare earth, proceeding under a special kind of cultural exceptionalism , as the misappropriated notion of the “lucky country” led our leaders, regulators, industry, media, academics and the wider public to believe that this time it really was different, that the boom would last forever as a “new normal”. A thoroughly discredited notion that thousands of years of economic history has not once failed to disprove.

Thus the tragedy of youth today is not unaffordable housing and an uneven share of wealth distribution, but rather our fast failing economic model. A model which is now built almost exclusively on leveraging the income from resource extraction and using it to borrow offshore funds to be pumped into housing and land, which is then paid forward into construction, consumer spending and employment, owing to the pyramid-like phenomenon of the “wealth effect”. An effect that only works as long as there are new entrants to the pyramid to maintain ever-escalating land prices.

A vast array of tax, monetary, political and regulatory settings must therefore exist purely to ensure these escalating prices and to keep the giant imbalanced behemoth propped up. And that really is it, the sum total of our economic system in this late neoliberal era. Almost all other economic growth outside of mining indirectly stems from the demand for mortgages and land, with recent figures showing that almost 100% of new credit creation since the GFC went to housing loans, rather than business lending for productive investment.

Worse still, (and little understood by the public and partisan commentators) is the fact that the government of the day is forced to work towards a balanced federal budget in order to maintain our AAA credit rating, which enables the price of offshore credit for housing to remain cheap. Without this implicit guarantee of bank funding costs, the house of cards comes crashing down, as will likely happen when the next global shock forces our public debt levels through the AAA cap of 30% of GDP. Our leaders and regulators know this, but dare not put a name to the beast, instead hiding behind the false claim that public debt is the disease, whereas the unprecedented private debts owed to offshore lenders to maintain escalating house prices are the real danger, and the real reason to be concerned about budget deficits. We have permanently altered our political economy in order to maintain this precarious balance, and thus delay the inevitable unwinding.

David Llewellyn Smith from MacroBusiness calls this new order the politico-housing complex. Our whole country is now utterly reliant on ever increasing demand for mortgages, a classic Ponzi scheme which is only held up by and in service of the rent-seeking actions of our complicit leaders, big business, regulators and land speculators, which like all Ponzi schemes, must eventually collapse under its own weight. Llewellyn Smith explains the fraying at the edges of this model that we are now experiencing:

“[John Pitchford’s] simple argument [that no good case has been made for government intervention to inhibit private debt-creation] became the talisman for three generations of institutional economists. So long as debt is in the private sector, resulting from decisions made by consenting adults, it does not matter. End of story.

Well, 25 years later, with a banking hegemony controlling much of the political economy via an incredible mortgage addiction, wider business utterly dependent upon this one source of demand, a budget held hostage to offshore bank borrowing guarantees, fiscal policy distorted around giveaways to sustain a vast asset quango, interest rates marching inexorably to an Australian ZIRP, households paralysed by the fear of asset-price retrenchment, generations of Australians locked out of housing, as well as competitiveness and productivity persistently, nay, hilariously low, I’m sorry to have to tell you gents, it does matter.

It is not “confidence” that is missing, it is a viable economic structure. Households can sense it (if not see it) in shaky savings overly reliant upon asset prices, and won’t support the model any longer by spending like yesteryear’s drunken sailors. This conservatism is so entrenched that not even the greatest mining boom in history, nor a subsequent house price boom, nor huge immigration, have remotely dislodged it. As a result business faces overcapacity and has no reason to invest.”

A real agenda for Australian youth

So where to from here, how do we fix the broken model at this late stage? How do we bridge the generational divide that puts young Australians at the mercy of the rent-seekers in control of our leadership, regulators and industry, who are determined to extract maximum possible benefits for themselves, until such time as the parasite kills its own host? My belief is that the mainstream left (eg. Labor and The Greens) can shake off the negative historical badge of being “anti-business” by actively targeting unearned income and rent-seeking in their economic and taxation policies, rather than allegedly (unfairly or otherwise) pitting labour against business.

Rather than exclusively talking about big-business paying their share and increasing the tax burden on labour, both parties could seize the political day by pushing for reforms that specifically target the economic “free-lunch” that has so massively distorted our political economy, whether originating from big business rent-seekers like mining companies, polluters and banking monopolies, or the baby-boomers clinging to their negative gearing and superannuation concessions for dear life, oblivious to the unsustainable and detrimental nature of rent-seeking in all its forms. It retards the real economy, inhibits socio-economic progress, worsens equality and living standards, and as described by the recent Murray Financial System Inquiry, places our whole system in perilously close proximity to financial and economic calamity. It takes us away from a dynamic, progressive, diverse, productive and competitive society to one of narrow parochial interests where unproductive middle-class speculation is the name of the game and Peter is robbed to pay Paul.

This is why I believe that there is currently no genuine agenda for Australian youth, indeed for the future of all Australians, until we face up to and reform our backwards economic model. Destroying rent seeking, land speculation and monopoly power in their many forms is the best way to save future generations from our broken political, economic and financial systems, and should have obvious appeal to the left and the right, were it not for their conflicted interests and demonstrable corruption. Its the only logical solution to this very real intergenerational theft.

Until we can remediate our political-economy to be open and dynamic, and rewarding of genuine endeavour and productivity, agreeing on a progressive middle ground, what hope have we for addressing the really big-picture intergenerational challenges? Climate change, environmental degradation, resource depletion, sustainable economies in a world with real limits to growth, ruinous and corrupt financial and monetary systems, loss of hard-fought freedoms and civil rights, severely degraded democratic institutions, poverty and the ills of globalisation, perpetual war? As proven in the fallout to the global financial crisis, progress towards these highest order priorities for human survival and prosperity are the first things to be cast aside when financial and economic crisis strikes. People reflexively hoard resources and disengage. Fear causes us to shy away from tough political issues, because the hierarchy of needs ensures that there is a necessary focus on survival and preservation of wealth in preference to the greater common good.

That is why addressing our addiction to land speculation and it’s many sponsors is the first step in restoring political engagement and progress. I have many well-researched recommendations to offer towards this end, but will save the listing of a full reform agenda for another time. Rather, I want to point out that we can create a genuinely progressive political manifesto by simply adopting the recommendations of the last tax system enquiry, the last financial system inquiry, the last housing affordability inquiry, the last climate change enquiry, the many economic studies on the end of the mining boom and for good measure, instituting a federal political corruption enquiry (ICAC). These detailed reports and their recommendations must be the bedrock of true reform, and it is criminal that they are completely neglected by our leaders and regulators. We have a mandate from our country’s foremost experts to deliver progress.

Yet our leaders are terrified of identifying the common narrative that the electorate and our collective experts are crying out for: the New Deal 2.0. We can start now, or have it thrust upon us by the inevitability of economic, financial, social and political breakdown, from which point the road to reform will be unthinkably challenging.

So where is the youth party who recognises the need for compromise and rational discourse? The small-l liberals looking out for young Australians in preference to rent seekers? The mainstream conservatives are a nepotistic, short-sighted species of cronies, while our mainstream left are wounded, gun-shy, and economically incoherent panderers. The left will not save us while they refuse to stare down the interests of the politico-housing complex and the exceptionalism borne of our staggering emergent wealth. The left and the right must both embrace genuine progressive reform to our taxation, economic, financial and political systems in order to once again represent the interests of all generations of Australians, not just those fortunate enough to have disproportionately benefited from the forces of financial deregulation and the largest economic boom in 100 years or more, both of which have now left us facing destitution.

We must question the assumption that the means and nature of our current wealth are fair, sustainable, productive, and even real. Only then can we define what the future looks like, and end the last 7 years of uncertainty and disintegration of our political economy and rediscover the country that once celebrated egalitarianism, shared sacrifice and hard work.

To that end, I believe that Australia needs a new mainstream political force to put forward a comprehensive and progressive true liberal agenda, a manifesto that would capture the voting force of a whole generation and more, and leave the mainstream parties for dust. And young Australians must take to the streets and the halls of power to create it, and finally stand up and demand change from the old guard, for everyone’s sake.

5 thoughts on “There is no agenda for Australian youth

    1. Thanks for that Karl, a privilege to be published on Prosper. Definitely a spiky topic to raise in progressive circles: how to (and why) shift the burden of tax from labour to land and natural monopolies.

      I feel like it’s a battle that might eventually come around though, as progressive parties in other countries (eg. UK Greens) have began to look at it, and more and more economic commentators are asking “what if there was a third way”? Such as Bloomberg today: http://www.bloombergview.com/articles/2015-03-03/to-fight-inequality-tax-land

      And the main point that I wanted to make in this article is that unless we tackle the ailing nature of our neoliberal tax and economic systems, in particular by returning to classical theories of value, what hope have we of tackling the worst of humanities ills? I agree with Prosper that we can’t solve the pan-global issues until we have true economic democracy.

      In my own personal perspective, unaffordable housing is not the “intergenerational theft”, but the chief symptom of the true failure of the world’s youth: the birth of neoliberalism in combination with financial deregulation to produce neo-feudalism, a model which is proving itself incapable of supporting stable and democratic societies and economies. I particularly love Michael Hudson’s view on this big picture, who’s work you are obviously familiar with.

  1. Matt. You hit the nail on the head. Australia needs a new mainstream political force.

    The last time this happened was the late 60’s early 70’s when the young generation of the day, who were not old enough to drink in a pub, were conscripted by their conservative Liberal Government to fight a foreign war they had no business in.

    This young generation took to the streets, tore up their conscription cards, were water cannoned, tear gased , arrested, beaten by police and abused for not being patriotic by both media and government.
    Gough Whitlam harnessed this anger then rose to power. The rest is history.
    Young, conscripted Aussies were withdrawn from Vietnem and education was made free of charge.

    The young generation of today might have to adopt similar practises.

    To start, they can mobilise, take to the streets and tear up their HEC’s debt contracts and say their not paying. Such contracts that suffocate the young in debt servitude are based on fraud and deception.

    In a few years time they will have the demograhic numbers and economic strength to be taken seriously. The politics will follow.

  2. Another great article, Matt. You capture the legitimate angst of your generation, and identify the culprits that are causing it. My generation (Boomers) will not reform the world. As you note in your writing, my generation is too heavily invested in and dependent on maintaining the status quo. Maybe your generation — as heirs of the costs but not the benefits of the status quo — will succeed where mine failed.
    I see you have adopted Michael Hudson’s “Georgist” idea of a Land Tax, to prevent private rentiers from capturing unearned gains. But the foundation of rentierism is not economic, it is monetary.
    We do not live in the kind of barter economies that are modeled by neoclassical economics. We do not produce economic value and “trade” it with each other. We buy and sell stuff from each other, for money. The economy produces all the economic value, but the economy produces exactly $0 “money”. Commercial banks “create” all of the government’s and the economy’s spendable, investible, earnable, savable money. As the issuers and owners of the world’s supply of “money”, banks collect annual economic rent on the entire outstanding stock of money.
    Banks create money in the form of bank deposits, which are loaned at interest to the parties who borrow the money into existence and spend it into circulation. The perverse arithmetic logic of the bank-debt money system is the root cause of most of today’s problems: financial, fiscal, economic, environmental. We sell off our public infrastructure, and scarify the Earth to produce evermore goods, in a futile effort to “get more money”.
    Most people wrongly believe “the government” issues the money; and most people wrongly believe banks are neutral financial intermediaries that fund themselves with deposits and lend out those deposits to borrowers, earning income on the spread between interest paid on deposits and interest charged to borrowers. But that is simply false. Do people really believe that all those billions and trillions of pounds and dollars and yuan and yen have “always existed”, and people earned and saved the money then deposited it in banks so banks would have billions and trillions of money to lend out?
    Banks “create” ALL of the money they lend. That’s where money “comes from” in the first place. Except for government-issued coins (about one ten thousandth of the money supply), the entire numerical quantity of the money supply begins its existence as a bank loan; the creation of a bank deposit in the bank account of the borrower.
    Banks create money in the form of bank deposits. Commercial banks purchase cash money (currency) from their central bank. Then commercial banks make cash available to their deposit customers. A bank will not give you cash unless you first have a bank deposit balance to “convert” to cash money. You cannot “withdraw cash” from your bank unless you first have “money in the bank” (or a line of credit wit the bank). Cash does not “add” to the numerical quantity of the money supply. Cash merely converts some bank deposit money into walking around money. It’s a zero-sum conversion of money from a less liquid form (bank deposits) into the most liquid form (currency; cash).
    Even so, cash comprises only about 3% of the money supply. The vast bulk exists simply as numbers in bank computers. {The shadow banking system creates all kinds of new money-like instruments in gargantuan quantities, but the entire shadow banking system is leveraged on what Perry Mehrling calls the “legacy banking system”; so the core problem is with the commercial banking system, and the shadow banking system is just a consequence of monetary corruption and ruination.}
    Banks create money as loans at interest. So the commercial baking system is extracting annual rent on the entire outstanding supply of bank-issued credit/debt money. People wrongly believe that we use government-issued “fiat money”. But governments do not “issue” ANY of the money they spend (except coins). Governments get money by taxing their economy and by selling bonds to banks. Banks “create” the money (bank deposits) they use to purchase government bonds. Which is why governments are billions and trillions of money “in debt”. A money issuer would not be “in debt”. But logical contradiction and empirical reality have little power to reach people who have been totally brainwashed with false beliefs.
    In a money economy, Fisher’s formula MV = PQ describes the relationship between money (MV) and activity in the real economy (PQ). Steve Keen is the first to point out that to increase M requires increasing debt; because all of the new money is issued by commercial banks as loans of bank deposits. So everybody wants “growth” in PQ; and everybody wants more “savings” (M). But the same people want less “debt”, which is an arithmetic impossibility in our bank-debt money system.
    Money is created as debt at (ongoing, annual) interest. So first of all, any quantity that changes at a rate over time is an exponential function. A money supply that exists as debt at annual interest will exponentially increase debt, without increasing money. Debt growth has reached the vertical, terminal phase of its exponential path.
    Banks charge annual interest on the entire outstanding stock of money. But money only exists in the amount of loan principal (and the discounted price at which banks bought new issues of bonds), ALL of which is owed to banks as “debt” (loan principal repayments). So the economy and the government owe all of the system’s money to banks as loan principal repayments; AND the economy and the government owe money to the banks in the amount of annual interest payments.
    The money to pay loan principal at least exists (though the parties who earned and saved the money are not the same people as the ones who borrowed and spent the bank-issued money; savers “have” the money that debtors “owe”, which is why savers will have their savings “bailed-in” next time debtors default en masse and take down the banking system). But the money to pay bank interest “does not exist”.
    Business profit present a similar $arithmetic problem. Businesses pay out the economy’s earned income as their “costs”. Then businesses mark up their cost price to sell their outputs at profitable prices. But the economy’s earned income (which is redistributed but not “added to” by government tax-and-spend) is only equal to businesses’ collective “cost price”. No income money is distributed to enable the economy to purchase the outputs — which the economy produced by its own work — at prices that are profitable to the businesses who own and manage the productive processes.
    So we have two negative sum equations. Worse, they are declining sum equations due to their ongoing repetition. Banks issue money (positive $numbers) in the amount of loan principal (P), but they simultaneously charge debt (negative $numbers) in the amount of principal + interest (P + I). Businesses pay out earned incomes (positive $numbers) in the amount of business costs (C), but businesses charge prices (negative $numbers) in the amount of cost + markup (C + M). The “prices” of money and goods are systematically higher than the “quantity” of money and income that exists to “pay” the prices.
    This is the insight that led British engineer CH Douglas in the 1920s to invent his “social credit” money and price system. But classical and neoclassical economics — the mainstream thought of academic economists and policy makers — thinks exclusively in terms of a barter economy where money does not really exist other than as some kind of abstract representation of the ‘value’ of the real economic wealth. It is this delusory worldview that Keen so effectively demolishes in Debunking Economics.
    Keen is building a new macroeconomics that recognizes the real existence and effects of money and debt, and of money/debt-creating banks. But mainstream macroeconomics believes we produce economic value and trade it with each other. My production of leather coats is the “money” I use to ‘buy’ your production of bacon. The more tradable goods we produce, the more “exchange medium” we bring into existence.
    Which is why academia and government policy have bought into neoliberalism’s productive cost-cutting and “efficiency”. They can’t see that one party’s costs are the other party’s income. They can’t see that income is a person’s ONLY source of “money” to buy products and to repay debts. They believe paying out less incomes and producing more products will “solve” our debt problems, because they believe the goods themselves are the ‘value’ that we can use to repay our debts. By conflating value with money, they blind themselves to the nature of our problems and the clear solution.
    The solution to the negative/declining sum equations of bank interest and business profits is government issuance and distribution of non-debt money. “Positive Money”. This kind of monetary system reform has been advocated for a century, with approximately zero effect on nations’ monetary systems. But since the recent monetary system collapse, and with the internet, the $arithmetic causes and solutions to the problems are becoming more widely known and understood.
    Without this minimal reform — governments creating their own debt-free fiat money and spending or giving it into their economies — we are trapped in the negative sum $arithmetic equations and any socially beneficial solutions will be “unaffordable” in terms of money. Many reformers advocate entirely stripping banks of their money-issuing privilege and having the government or a monetary authority issue ALL of the money. In the 1930s Irving Fisher advocated 100% reserve banking, where all of the money is created by governments and banks are reduced to the monetarily neutral financial intermediaries — taking deposits from savers and lending them out to borrowers — that mainstream economics and ordinary people wrongly believe banks already are.
    In 2012, IMF research economists Benes and Kumhof revived Fisher’s proposal in their paper, The Chicago Plan Revisited. The Positive Money group in Britain are advocating similar monetary reform. Lord Adair Turner cites a 1948 paper by Milton Friedman (a student of Fisher) stating that governments should always issue, never borrow, the money they deficit spend.
    Friedman also advocated a negative income tax as a form of guaranteed minimum income. Political economists (like JS Mill) have recognized since the mid 1800s that industrialization permanently replaces human labor with machines, so production of plenty for all is possible without full employment of the population. But capitalism only pays out incomes to people who contribute to capitalist production, so some means other than “earned incomes” is necessary to get money into the hands of people who want the goods but do not contribute to producing them.
    These are just a few examples. The monetary root of our problems, and the monetary nature of any viable solutions, is becoming known and is making its way up the policy-making foodchain. Without monetary reform, no other kind of reforms will be “fiscally feasible”. Bankers will foreclose on the real assets that borrowers pledged as collateral, and by their ownership of the bank-debt money system, bankers and their corporate and plutocratic fellow travelers will quietly acquire ownership of the developed economic infrastructure of the Earth that the people built up over centuries with the work of their own minds and hands: a process that is already well advanced. Governments and the people will be debt serfs. Capitalist owners will rule over their “private property”. Neofeudalism will be complete.
    As heirs and beneficiaries of capitalism’s ownership of the Earth, the top 20% of my generation (Boomers) presently represent, ideologically support, own and operate the status quo financial, economic and political systems. Some of us were radicalized in the 1960s and never fully bought into the Corporate State’s brainwashing. So we could “see” what was happening, but our efforts to avert it and transform the system failed. We had no internet. We had no knowledge of the money system. We attacked symptoms but were blind to root causes. We had to get our information by direct conversation with each other and from books that are still hard to find. The Corporate State fought back, used its funding of academia and ownership of the mass media to systematically mass propagandize and restore people’s faith in the system. Orthodoxy was restored, and heretics were relegated to obscurity.
    Your generation has instant mass communication, but I’m not sure that will help the spread of knowledge. Most people use the awesome information power of the internet to tweet OMG and to broadcast selfies of their ass. Rational analysis of the many and various defects of the system, and simple technical fixes like monetary reform, reach only an intellectual sliver of the population. People are moved by hot emotion and visions of possibilities, not by reason and cool clear logic. As Buckminster Fuller put it, “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” You have to show people an attractive alternative way of doing things.
    The Positive Money group in Britain is showing how the bank-debt money system is responsible for asset inflation and unaffordable housing. They are presenting an alternate government-issued monetary system that directly benefits your generation. Monetary reform is the sine qua non of any other kind of democratically beneficial reform. Without government issuance of its own fiat money, every reform effort will crash on the need to fund it by taxing some people to give money to other people, and on the negative sum rocks of “unaffordability”.

  3. Nicely written young man, and the youth have a battle on their hands that their parents refuse to take up, something that disgusts me no end.
    The roots of this crisis are bound up in the system as you say, but they cannot be resolved nationally, however, the platform or circumstances where rational discussions and where all can contribute and take part in decision making can take place is the pressing concern, and it will not come through the ballot box. They have spent over 30 billion dollars and enacted shoot to kill laws as they have no intention of relinquishing anything.

Tell us how it is!