Inflation

[JohnDe]

Inflation may be our secondary issue, if our governments and industry don't sort out productivity. Australians are being taxed to hard, housing affordability is an issue when workers lose 50% of their wages to tax - income tax, fuel tax, Goods and Services Tax, land Tax, Emergency Services levies, and so on. And don't forget about Council Rates which keep increasing due to property price increases and councils with agendas to spend on anything that takes their fancy.

It’s zero-sum economic thinking at every turn. What’s most disappointing is that it represents an unlearning of the hard-learnt lessons of the past.​

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Progressive governments focusing entirely on how to cut up the pie without any regard for growing it led us to ruin. But their progressive descendants learnt the lesson that before cutting up the pie, you have to have a pie in the first place.​

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The Hawke, Clinton and Blair governments really got that. But this isn’t just nostalgia. Today’s more enlightened progressive thinkers get it, too.​

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Here in the US, progressive writers such as Matt Yglesias, Ezra Klein, Derek Thompson and Jerusalem Demsas have all, in one way or another, advocated an “abundance agenda” that rejects the kind of zero-sum economic thinking that the Albanese government has come to epitomise.​

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Australia’s living standards have improved very little in the past decade and have actually gone backwards in the past couple of years. Our economy is not on a path that will generate the growth dividend to pay for the things progressives want. This way lies ruin. Perhaps some future Labor government will learn that lesson.​

Disappointing zero-sum economic thinking represents unlearning of hard-learnt lessons of the past

At the joint press conference announcing the government’s recent aged care reforms, Jim Chalmers said something very revealing about how the Albanese government sees economic policy.

“Aged care spending will continue to grow, but at an average of 5.2 per cent, not 5.7 per cent, over the next decade,” the federal Treasurer said. “And that means, as a share of GDP, over the next decade it will moderate from 1.5 per cent of the economy to 1.4 per cent, even with more people in the system and a higher standard of care at the same time.”

Seems like magic, right? The kind of positive-sum economic reform we became accustomed to in decades past. Sadly not. This statement reflects “thinking like an accountant” rather than “thinking like an economist”. Because Chalmers was referring to the fiscal cost of aged care and not its economic cost.

Because that was the focus of the reforms negotiated with the opposition and announced by the government. To increase the amount users pay for aged care so as to relieve the government of some of the burden.

Now, don’t get me wrong – making the budget more sustainable is an important task and the government deserves credit for chipping away at it. We have a big structural deficit to close and this reform will help. But we should not kid ourselves that it is economic reform.

Economic reform generates a growth dividend that enables our economy to afford better aged care. Indeed, better aged care would be just one of countless manifestations of the higher living standards afforded to us by a growing economy. But that is not what this government is delivering.

No, those better aged care services will come at a cost to those who will pay for them.

Yes, we can have them, but we’ll have to give up something to get them. Economic growth, on the other hand, lets us have more of everything.

Sadly, this zero-sum economic thinking pervades this government’s policy agenda.

Take the way it is approaching childcare, with a focus entirely on who pays and not at all on what it costs. The problem with childcare is not that the government doesn’t provide big enough subsidies. It’s that the services cost too damned much. And that problem will never be solved with subsidies which, if anything, make that fundamental problem worse.

Do we expect that regulating 15 per cent higher wages for childcare workers will lower the economic cost of childcare?

Do we expect that raising workers’ income tax burdens via bracket creep (the government’s only major projected source of new revenue) to fund higher childcare subsidies will improve their workforce participation – the thing the subsidies are intended to achieve in the first place?

The problem with childcare is that it is a wildly overregulated industry characterised by weak competition that offers minimal choice and flexibility to parents. The current childcare system generates no incentive to improve quality, to offer services that better suit parents and their children, or even – god forbid – to generate some genuine innovation to raise productivity in the sector.

Our obsession with heavily subsidising private childcare providers – turbocharged by the Morrison government, it should be noted – has served nobody except perhaps the providers themselves, and undoubtedly has shrunk the pie.

The government thinks our only way out of this hole is to keep digging deeper.

What about housing, by far our country’s greatest economic emergency? I don’t know a single credible economist who believes that anything other than a dramatic expansion of supply will solve this problem. It is as close to a silver bullet as we have in economic policy.

Yet the government’s housing policies will make such a small difference to housing supply it’s hard to understand what all the fuss is about. They are an order of magnitude (or two) short of the challenge.

Meanwhile, the government’s flagship housing policy, in which the government would co-invest in 40,000 homes, would have exactly zero impact on supply. A few lucky people who win the lottery will get a house that someone else would otherwise have had.

The government’s mooted curbs to negative gearing, far from boosting supply, will act only to make investing in new housing supply even less attractive.

It’s zero-sum economic thinking at every turn. What’s most disappointing is that it represents an unlearning of the hard-learnt lessons of the past.

Progressive governments focusing entirely on how to cut up the pie without any regard for growing it led us to ruin. But their progressive descendants learnt the lesson that before cutting up the pie, you have to have a pie in the first place.

The Hawke, Clinton and Blair governments really got that. But this isn’t just nostalgia. Today’s more enlightened progressive thinkers get it, too.

Here in the US, progressive writers such as Matt Yglesias, Ezra Klein, Derek Thompson and Jerusalem Demsas have all, in one way or another, advocated an “abundance agenda” that rejects the kind of zero-sum economic thinking that the Albanese government has come to epitomise.

Australia’s living standards have improved very little in the past decade and have actually gone backwards in the past couple of years. Our economy is not on a path that will generate the growth dividend to pay for the things progressives want. This way lies ruin. Perhaps some future Labor government will learn that lesson.

Steven Hamilton is assistant professor of economics at George Washington University in Washington DC and visiting fellow at the Tax and Transfer Policy Institute at the Australian National University.

 

[Smurf1976]

Didn't hot property, the block etc only appear after housing went bonkers and everyone thought they'd gotten rich?

2003 for The Block and it was an instant hit.

Prior to that there was always the odd random building show on TV, but generally middle of the day on a weekend and cheaply produced. One camera, no serious effort at production, and some carpenter in overalls explaining here's how to build this deck, cubby house or whatever. Here's a full list of materials you'll need and here's how to go about building it.

Versus The Block that has basically zero educational value indeed somewhat the opposite, it's arguably in the category of disinformation given so much of what's involved with doing the work is very intentionally not shown, making it look far easier than it is. Plus the big one, the whole focus is on renovating for profit and maximum selling price, it's not about practical living. So a very different mindset it appeals to.

I'm not suggesting that as the only cause, but 2003 was relatively early in the real estate boom and I do think that program and others like it have contributed to the mass sentiment that the purpose of housing is to maximise its resale value rather than as a place to live. It's another factor along with several others.

 

[Smurf1976]

Inflation may be our secondary issue, if our governments and industry don't sort out productivity.

Another issue I'll add is the ticket clippers.

Everything from live entertainment to utilities there's a layer of middlemen taking a huge chunk of the revenue simply to sell the service.

It's not being a musician that makes the big money these days and nor does the venue owner get it. It's the business of selling the tickets that's gobbling up a huge portion of the money.

Same concept in many industries. It's the transaction that's gobbling up the money, not the producer or the owner of necessary infrastructure.

 

[divs4ever]

This way lies ruin. Perhaps some future Labor government will learn that lesson.

they don't want to learn that lesson

just like the 'deplorable Democrats ' ( in the US ) they realize keeping the masses impoverished and desperate and willing to believe unicorn promises , not matter how many decades they have failed to deliver before

 

[Knobby22]

CBA predicting an interest rate cut in December....and backed it up with some graphs...shown in the following short video.
Also some great graphs about deflation in China. Nasty.

Tuesday finance with Alan Kohler

News from the world of finance and business. Top stories in text, video and audio. Business video news bulletin. Features and analysis.

www.abc.net.au

 

[over9k]

I'm not suggesting that as the only cause, but 2003 was relatively early in the real estate boom and I do think that program and others like it have contributed to the mass sentiment that the purpose of housing is to maximise its resale value rather than as a place to live. It's another factor along with several others.

I can only speak to my parents and their friends as I was just in my teens at the time but I can remember them all banging on about a "big housing boom we've just had" (they all thought they'd just gotten rich) and then all the shows like hot property, the block etc coming out in response to all the hype about housing getting everybody rich.

An entire generation of boomers thought they'd just gotten rich through nothing other than owning a house and so housing "investment" became the big thing from there on out, hence why "the block" was the huge hit that it was as everybody saw it as a documentary on how to get rich. Same with "hot property" and all the others. They were in response to the surge in house prices.

Better homes & gardens and all those types were basically just about your hobby and DIY stuff, but hot property, the block etc were about how to get rich.

Don't get me wrong, "the block" was still quite entertaining, but that wasn't the primary reason why people watched it IMHO. "Hot property" even less so.

I can remember my parents, father in particular, absolutely glued to the screen every time hot property came on at 8pm or whatever it was, and it wasn't for entertainment purposes.

 

[Smurf1976]

They were in response to the surge in house prices.

Perhaps it could be said they were both.

A response to a rise in property prices.

A contributor to that rise continuing even further.

Regardless of causes though, I think there was a definite sentiment shift around that time. It went from "buy a house to live in and pay it off as quickly as you can" type thinking to "buy a house to get rich".

 

[over9k]

Absolutely. I just don't recall anyone talking about using housing to get rich until after prices surged.

Kind of like how everyone dismissed crypto at the beginning, then a whole stack of people got filthy stinking rich when bitcoin et al prices soared and now every idiot you meet wants to "get into crypto" because they saw how other people got rich doing it.

 

[over9k]

Meanwhile: Israel promises it's not going to target iranian oil infrastructure. Oil prices dump as a result. Good news.

 

[mullokintyre]

Meanwhile: Israel promises it's not going to target iranian oil infrastructure. Oil prices dump as a result. Good news.

Probably about as reliable as US promises not to expand NATO closer to Russia.
Mick

 

[JohnDe]

Perhaps it could be said they were both.

A response to a rise in property prices.

A contributor to that rise continuing even further.

Regardless of causes though, I think there was a definite sentiment shift around that time. It went from "buy a house to live in and pay it off as quickly as you can" type thinking to "buy a house to get rich".

It is like any investment opportunity. At first there is only a small percentage of people that see the opportunity, and of those there i a smaller percentage that have the means and/or initiative to take that opportunity.

My dad and some of his relatives and friends realised the opportunity of property investment in the late 70's.

Dad purchased his first run down house & land investment in about 1978. He was assisted by family and friends with trades to renovate and prepare for rent. A few years later he did the same, and then again, and so on until the late 90's. By then he was over all the crap from tenants and how the laws were set up to protect them.

However, he had laid the foundation for his sisters and his children to do the same thing.

By the time the TV shows came up with renovate and sell programs the idea was already well and truly taken by many people. the shows did not create the boom, they just rode on it's coattails and helped speed up what was already happening.

 

[IFocus]

Perhaps it could be said they were both.

A response to a rise in property prices.

A contributor to that rise continuing even further.

Regardless of causes though, I think there was a definite sentiment shift around that time. It went from "buy a house to live in and pay it off as quickly as you can" type thinking to "buy a house to get rich".

In WA it all started after the Doc Com bust where money was looking for investment and buying houses was seen as a lesser risk compared to the stock market.

It was a smaller group and you needed good strategies to get banks to lend the capital I went to several sprooker seminars to learn the strategies.

Later banks started reducing staff and that's when old bank managers started up mortgage broking and if you knew the right one who could work the system they would get you the finance.

As mortgage broking grew it allowed average mums and dads access to easey finance and along with TV shows watched the whole thing blow up to where it is today.

The other side of easey finance I have seen a few lose the lot with very bad property investing decisions.

All housing booms and this is true for most investing booms start with credit growth or reduced barriers to credit and of course to keep on the thread track generally causing inflation of the sector.

 

[divs4ever]

from my parents i learned to pay out the mortgage early

from more distant relatives i learned about forward-looking and location , and despite my mediocre results in Grade 10 Geography those seldom attended lessons served me well

buying property in about thinking 20 years ( or more ) ahead ( and chances are you can afford that bit of dirt as well )

 

[over9k]

U.S now considering placing export restrictions on microchips to "some" countries.


Let's start the clock for when a full on chip embargo is announced shall we?

 

[Smurf1976]

Let's start the clock for when a full on chip embargo is announced shall we?

The macro story here is globalisation is now in that category of things that isn't dead but is well past its peak.

Like anything that's peaked, it doesn't go to zero and the decline is bumpy but overall the trend becomes clear.

 

[divs4ever]

U.S now considering placing export restrictions on microchips to "some" countries.


Let's start the clock for when a full on chip embargo is announced shall we?

it won't matter , China and Japan are making their own 'home-grown ' ( not just pirate copies ) chips

the major US players go for maximum profit over efficiency ( AMD might still be the exception )

China will achieve the same results ( or better ) a different way especially as they leap ahead in mobile communication technology

more likely is the US is facing critical commodity shortages and can't supply in the numbers to service all the customers (remember all those data centres still to come online (and liable to have obsolete processors in just three years time )

 

[over9k]

Not commodities shortages divs but chips absolutely. It's a major strategic vulnerability, hence the carrot-and-stick chips act a little while ago.

 

[over9k]

Trump now stating he will be increasing tariffs. Obviously a 50/50 shot of him winning currently.

 

[greggles]

After peaking in April 2022, the M1 Money Supply has been slowly increasing again since April 2024. Are we due for another wave of higher inflation after the US election?

 

[mullokintyre]

After peaking in April 2022, the M1 Money Supply has been slowly increasing again since April 2024. Are we due for another wave of higher inflation after the US election?

Yes.
Mick