Rational Radical is a blog dedicated to alternative evidence-based analysis and commentary on Australian political economy. Like many other under-represented Australians, my chief concern is our failure to pursue a genuinely progressive reform agenda, a failure which will eventually and inevitably expose the increasingly fragile basis of our staggering economic boom of the last 20 years or so. Both the left and right sides of our political class have become increasingly complacent and populist in order to enshrine (and in reflection of) a newer set of wealth-driven values, values which have come dangerously close to ruining egalitarianism in this country. Worse, they have set us up for the largest downturn in living memory in the absence of crucial reforms to taxation, regulatory, fiscal and monetary policy.
As a young Australian belonging to Generation Y, I only have vague memories of the early 90’s recession, and my understanding and sense of the importance of economics was somewhat limited, although social justice has always been central to my views. However, post GFC global economics and politics was a shocking wake-up call to those who understood little about the murky world of global finance and crony capitalism, and my passion for the progressive agenda quickly extended into local and global macro-economics and the now apparent failures of the neoliberal project.
The inextricable links between economy, energy, environment, finance, money, capital and taxation became clear. I became aware of economic policy (political economics as “economics” was once known) as central to every issue currently facing local and global society. I came to believe that a general mistrust and lack of understanding of basic economics is the central reason that global financial oligarchs have come to dominate nearly every facet of political decision making in the 21st century, and attempts to genuinely reform humanity’s most pressing issues have been so easily prevented by vested interests.
In Australia, we only made it through the GFC largely unscathed because of our “lucky” dependence on China’s demand for our mineral resources. Unfortunately for us however, despite decades of warnings to manage the boom responsibly, we made probably the worst set of decisions you could make under the circumstances. These decisions have set us up for an epic downturn as the multitude of headwinds and economic imbalances coalesce in what will probably be the biggest shake-out since the 1890’s depression (a systemic crisis long since forgotten). Successive governments have taken the proceeds of the resources boom, and directly handed them on to middle class and wealthy Australian taxpayers in the form of “tax transfers” and subsidies for unproductive investment.
We took those funds and leveraged them up into housing using foreign debt, resulting in the most legendary land bubble in Australian history. The massive amounts of credit poured into housing in the last 20 years has choked off productive investment, and coupled with our sky high dollar has all but hollowed out our productive sectors, such as manufacturing, technology, services and tourism. These symptoms are very characteristic of economies that suddenly discover emergent wealth in resources extraction, and when poorly managed result in over-valued currency and fixed assets, declining manufacturing and non-resource export industries, simultaneously high private debt and low public debt, and depressed consumer spending. Eventually something has to give.
The same phenomenon in Holland was termed Dutch Disease. When the cycle has finally played out here, it will be known as the Australian Ailment. It will be one for the history books. Not only have we squandered the proceeds of our record breaking economic boom, but we have gambled it all on the illusion of endless Chinese growth, a gamble which has set us up for a giant reckoning, as Chinese re-structuring, the winding down of the mining boom, changing demographics, record levels of private debt and some of the most expensive housing in the developed world lead to the perfect storm of consequences.
In the face of these challenges, our mainstream press have themselves become grossly complacent and populist in their cheer-leading of the Australian miracle, and exceptional-ism has become the flavour of the decade, as we all but escaped the economic fallout experienced in other developed nations when their financial and housing markets collapsed. We continue to brag that “it’s different here”. Genuine and potentially severe economic risks are lost in the false dichotomy of partisan politics, that characterises our situation as either an immediate crisis of public debt and government profligacy, or the best economy in the developed world which should not be “talked down”. Both views are egregious lies that derail debate about our real structural imbalances and long overdue reforms.
Meanwhile, the growing ranks of bloggers, analysts, economists, academics and brave journalists who have tried to point out the growing tower of risks that we face have been marginalised as doom-sayers and non-believers in the Ozzie miracle. This despite the mountains of valuable research and evidence they produce documenting the risks and imbalances inherent in this late stage of our economic super-cycle and pointing to the unfortunate and unavoidable conclusions of our prosperity binge. That conclusion being the mother of all economic forces “reversion to mean” – a destructive and likely swift return to economic fundamentals. We will eventually be told that no one could have seen it coming, despite the fact that the pariahs of economic journalism in this country have time and time again suggested possible solutions to these imbalances, and been laughed out of town. Well, as Gandhi once said: first they ignore you, then they laugh at you, then they fight you, then you win. Right now we are in the fighting stage. And sadly, to reach the “win” stage will be to realise to our collective horror that they were right all along.
Which is where I find my own small part to play. Fighting on the side of the argument that has history and irrefutable evidence on it’s side. My friends and acquaintances have come to know me as fiercely dogmatic and forward (and often repetitive) in my prosecution of the case for the great Australian reckoning, and I presume that such arguments are often taken as pessimistic by default. But I normally disagree with them in this interpretation. I am pursuing what I see as the vital truth about our current political, economic, cultural and social circumstances by way of preparation.
I wish to inform myself and anyone else who will listen with the proven lessons of history, and will fight unequivocally for the reforms to our economic, financial, taxation and political systems in this country (and the world by extension) that we urgently need. I believe it to be a realistic, possibly even optimistic view. I believe that anyone who says it’s too hard to change has a reason for not wanting things to change, and it’s always easier and closer than they would have us believe. If enough people believe in and understand the case for change, then change becomes possible. So if I can impart some small amount of understanding about political economics, and how simple yet misunderstood it’s central principles are, then we will be that much more prepared for what is sure to come.
Final note: My understanding and analysis is almost exclusively based on the tireless and exceptional work of the “pariahs of economic journalism” that I mentioned above. I’ve included a key selection of these primary sources under my Links section. Please take the time to visit their sites, and benefit like I have from their indispensable wisdom.
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Here is a copy of my submission to David Murray’s Financial Services Inquiry.
The important part of this proposal is that it gives a way to remove the instability in economic systems caused by interest on interest. The principle can be used for any investment – particularly housing.
Well said! If you are interested in examining a similar bubble my book “When the Bubble Bursts: Surviving the Canadian Real Estate Crash ” has all of the info. People in Canada still debating if there is a bubble.