Some time ago before Tony Abbott came to power, I made the awful observation that a Tony Abbott Prime Ministership may well be a DLP government with all kinds of BA Santamaria-like notions making their way in to the Liberal Party position. That, even if Abbot had own, in some ways the Labor party in one guise or another would leave an imprint on things.
One year along, I have to admit, that was totally hopeful, wishful ,idiotically optimistic blather; clearly it was one of those stages of grief called negotiation. During the process of moving the blog back here, I had to confront the reality that as awful as the Gillard ALP government got, nothing could have prepared us for the ongoing enormous clusterfuck that is the Abbott government. For that I cannot apologise to my readers enough.
It was always going to be bad; it is bad, and it's not going to get better - just worse.
No Such Thing As An Energy Superpower
Pleiades sent in this article about how this notion of an energy superpower is misguided.
Former Treasury secretary Ken Henry gave a speech on Tuesday outlining the danger that we have fallen under the spell of a narrative which says the route to economic prosperity is built on exports above all else.
Henry pointed out that a focus on improving the competitiveness of our exporters was a good thing, but this was part of achieving the final end-game – improving both present and future Australians’ overall quality of life. Henry noted that this focus on exporters was very useful in helping the general public to see the value in a range of economic reforms which unfolded over the 1980s. Yet these reforms were, in fact, great for the economy as a whole – not just exporters. However, he was worried this heavy emphasis on export competitiveness was now acting to distort public debate in ways which distracted us from the final end-game.
Unfortunately, this government is in real danger of falling for a sub-narrative related to this, one that has its roots in the 1970s but doesn’t make sense today.
A range of statements from this government seem to suggest it believes that Australia’s economic prosperity and competitive advantage rides upon the availability of cheap energy for domestic use.Because the Abbott government is basically a mouthpiece for the corporate control of this country and wants to do the bidding of the rich mining magnates - except Clive who went into politics instead of simply buying it - we keep getting this distorted view that somehow mining and its support industries are somehow the most important thing in the Australian economy. Hence the twin repeals of Carbon Pricing and Mining Rent Resources Tax can be made to look like important planks of an imaginary tax reform agenda when in fact all it does is absolve the same mining magnates from having to pay tax for their polluting ways and pay less on their excess royalties.
Be that is it may, the whole point of having energy in proximity to other resources for doing things as a benefit, has been shot out of the water. We certainly don't do steel any more, and this is in spite of iron ore being as abundant as coal. We don't do chemicals and chemicals is intensive on gas - and we sell what we have already and it's over-priced. Building materials is the third plank but of course this stuff weighs too much to be shipped around the globe - so as with steel it's not really going to be an export winner.
Therefore it's worth noting this bit:
Even if Australia’s major competitive advantage is cheap energy and, particularly, cheap electricity for domestic use – it ain’t worth much. What does seem to be far more valuable is the exporting of energy to others.
If Abbott and Macfarlane think we’re going to get rich on the back of being an affordable energy superpower they’re fooling themselves. So time to abandon that narrative.And that just about sums it up. This illustrates yet another way in which this current government really has no idea what it is doing with industrial policy.
How Risks Layer Up
There was a bit of argy-bargy this week about whether Australia's banking sector is in fact healthy. It's implicitly tied up with whether the big 4 banks are borrowing too much, and further still, whether they are lending out to the wrong areas, feeding a bubble in property (although the worst-treasurer-ever Joe Hockey says it's not a bubble, it's just a shortness of supply). I'm no economist so it's hard to go to charts and demonstrate how the risks are layering up, but I think I can offer up some issues that might make people a little more concerned.
The news this week included reports that house prices are up in Sydney and Melbourne, but the majority of buying was done by investors. First time buyers have declined to historic lows. This suggests - no let's be more blunt - this underlines the fact that the worst-treasuer-ever Joe Hockey is entirely wrong in his statement that it is a shortness of supply. Again, going back to the definition where price inflation is too much money chasing too few assets, it's easier to explain that the ordinary dwelling-buyer has receded to give ground to speculators who are chasing the short supply, pushing up prices. Whether one calls this price inflation a bubble or not is academic next to the rampant speculation going on in the property market.
Amazingly, banks want to be in this market rather than in the business of lending to businesses. So instead of lending to a business that might want to invest in capital and ratchet up production, banks have lined up to lend money to people who are flipping houses. Not only are they doing it as fast as they can, they're doing it as big as they can. It has the net effect of making banks look bigger because they're lending out more money to cover the same few positions. Once again, you see the definition of inflation right there. It's a misallocation of capital.
Here's the thing. If people are using their self-manage super funds to be in property to speculate, that's one thing. But ordinary people have superannuation in funds, which in most part are exposed to equities and indexed, so they too would be exposed to banks. The ordinary folks might even be exposed to REITs who also borrow heavily and put money into property. And every week/month/quarter, the super money keeps going into these funds and gets dispersed and invested, which largely goes to chasing the ever-diminishing pool of assets, pushing up prices even more.
Just for the sake of the argument, even if there isn't a bubble in property, that's a lot of risks lining up onto property. Consider for a moment the mining construction boom is over, manufacturing is beating a retreat under the Abbott government; retail is hurting thanks to competition from on-line merchants,; agriculture is getting bought out by overseas entities in an ever increasing rate; just why should finance and property be so far ahead of the curve when the rest of economy is crawling along? If the whole of Australia is growing at around 3%, wages aren't growing at all, why should property be growing at a 15-18% clip, if not but for a misallocation of capital?
Not only that, what happens when there is a crisis to the banks? A lot of debt positions are going to be wound up and a lot of it is going to happen in the property market first. Not only will property prices be hit, banks will look insecure, the stock market will crash and take people's superannuation with it. The Australian government will probably do everything it can to keep prices inflated, but that's essentially where we are at in Europe and Japan. Nobody wants to take a hit on their major asset, so everybody agrees to socialise the losses and cut welfare.
Do people really think the worst-treasuer-ever Joe Hockey is credible when he says there isn't a property bubble in Australia? Oh, and by the way, we've gone to war now.
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