Prof. Ross Garnaut gave the Hamer Oration at Melbourne University on Thursday. He pointed out that Australia has not experienced a recession for 17 years, a record for The Lucky Country. Such a period of unbroken growth is not just an Australian record, it is a world record. But one-way tickets have built-in risks for the return journey.

Australians seem blissfully unaware of the burdens in high housing costs. We’re onward and upward!  Home Sweet Home is not just a haven of privacy and rest, it is a profit centre now.

But is it? Let’s look.

The Stoics, raised in the struggle of WW2, are fading away – their houses sold as they die or money is needed for nursing home bonds. They are real estate winners, the fruits of their investment to be enjoyed in death or dementia.

The Baby Boomers – now 50 years and older – have superannuation and valuable homes. Super took a devastating tumble in the Global Financial Crisis, yet there’s buckets of equity in the house ratcheting up day by day. But if we sold, where would we live?

Generation X have their foot in the market too, enjoying the gains on their starter homes. Secretly, they think they should have been able to flip their crummy house for something better by now. Oh well, it will be our turn soon.

And Generation Y is doing the sums. Sums that don’t add up. Two incomes, a giant deposit and a big thirty year mortgage buy a ‘starter’ home: a worn house in a poor suburb with bad schools and criminal neighbors. Can we blame them for declining to commit?

All these groups are trapped – tortured by the dream of land ownership in an era of high real estate prices, steep transaction costs and limited supply.

Dr Gavin Putland of the Land Values Research Group has released a remarkable graph comparing Aussie house prices to the usual suspects.

The real estate bubbles have burst in Europe and America. Australia has been protected by its stellar economic performance.

Did I say protected?

The banks are. Your mortgage is full-recourse and the bank can strip you of all assets if you default. Much of their housing book is well aged, protected by principal repayments and rising house prices.

If house prices fall by 30 per cent as they have in the US, Aussie banks will be unharmed.

The Stoics wont notice the change in their fortunes.

The Boomers will be financially ruined, their plans of spending a third of a lifetime playing golf erased. Retirement will be spent writing very angry letters to the media and their MP.

Gen X will remain stuck in their starter homes, suddenly worth less than the mortgage.

Gen Y will be able at last to buy. But they wont – because the price falls will go on and on for years.

Who benefits from high house prices? No one really. A price bubble can only leave regrets: ‘If only I had sold at the peak!’ But no one does. No one.

My wish is that we vow to never let this happen again.  The  real estate market needs automatic stabilizers to smooth the peaks and troughs. The stabilizer is Land Tax, a reform called for by the Henry Tax Review and long advocated by Prosper Australia.

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photo credit: Powerhouse Museum Collection

Hon. Clyde R. Cameron A.O.
Australian Minister for Labour (1972 – 1975)
H/T – Liberty Australia

Keynote address by Clyde Cameron to the Victorian Country Conference of the recently amalgamated Association made up of the former Australian Telecom Employees’ Association and Australian Telephone & Phonogram Officers’ Association held at the Clyde Cameron College on 28 April 1989.

Mr. Chairman and fellow Laborites:

The main thrust of my remarks tonight will be towards the role of the Commonwealth Bank of Australia. But before doing so, I want to express a concern I share with a growing army of loyal and lifelong Laborites over the Hawke Government’s attitude towards privatisation of public assets.

Only a few weeks ago Mr. Hawke made noises which suggest that he, at any rate, may still be toying with the idea of selling Australian Airlines and Qantas.

This may not be done in one fell sweep. It could be done in stages. Stage one, could be to continue the crazy practice of compelling the public to pay taxes to itself by taxing its own enterprises.

The next stage could be to deliberately starve them of capital by refusing them the rights enjoyed by Alan Bond & Co. to borrow funds for capital expansion.
And the final stage could be to then pretend that the Government is left with no option but to sell.

Or, it could be to short circuit all three stages in so far as Australian Airlines is concerned, by appointing a Chief Executive who will “co-operate” with its competitor instead of engaging in active competition with it. There are more ways of killing a cat than choking it with butter!

In this way, deregulation could become another way of ensuring that Ansett Airlines would continue to receive such benefits of regulation as to be guaranteed the right to take government business away from the Government. It has an equal right with Australian Airlines to carry public servants while they are carrying out public duties. In fact, it actually enjoys a right to carry a percentage of the country’s mail!

One might well ask, ‘Just how stupid can a Government become as to tax itself and give its own business to its opposition?’

Ansett Airlines has already been given a 20-year lease on 50 per cent of our air terminals. At one time it was even suggested that the Government was considering actually selling the terminals to private enterprise! The terminals themselves have already been transferred to a body called the Federal Airports Corporation.

But is this just the first step towards actually handing over our air terminals to private profiteers?

Can we assume that bribery and corruption in high places is confined to the State of Queensland. Perhaps it is. Maybe the police, politicians, and public servants in the rest of Australia are lily white and as pure as the driven snow!

But if they are, they deserve the highest possible praise; because the temptation to place the interests of the rich and powerful above the interests of the majority is great indeed.

Leaving aside the possibility of corruption at the personal level by way of expensive gifts, overseas trips and meeting the costs of sending a friend’s children to private schools, etc., there is the funding of the major Parties’ campaign expenses by private entrepreneurs.

Television has lifted the cost of electioneering to unbelievable levels Mr. David Morgan, a former public servant, and now the Federal Director of the Federation of Australian Commercial television Stations, told a March meeting of the Joint Standing Committee on Electoral Matters, that it cost the A.L.P. $500,000 just for three seconds of voiceover and graphics in each T.V. Spot at the last election.

The total cost must have amounted to tens of millions of dollars. If we can assume that the Liberal Party is charged the same rate, we are entitled to ask, ‘Who’s paying; and why?’ One thing is certain,the cost is not being donated by the ordinary wage and salary earner!

Before television, election campaigns were run for a tiny fraction of today’s costs. In 1947, while I was still the State President of the Labor Party, the total cost of the whole State election campaign was £1,100. In earlier elections it was even less. But every single penny of those costs was donated by our affiliated unions.

The Labor Party of that period owed no favours to Big Business, takeover merchants, Media Barons and the like. But today’s union donations are infinitesimal compared with that which comes from private sources who stand to gain from privatisation of public assets and other favours.

In fact, at a meeting of the Port Adelaide F.E.C. of the A.L.P. on the 9th of this month, the Hon. Mick Young, a former Federal Campaign Director for the Party, declared that union contributions now cover no more than 3 or 4 per cent of campaign expenses.

The rest must, therefore, come from donors who expect some favour! Does anyone really believe that Alan Bond and his rich mates kick into Labor Party funds because they believe in our Socialist Objective? Of course they don’t! They do it because they know that he who pays the piper can call the tune.
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photo credit: jirotrom

We honor Liberty in name and in form. We set up her statues and sound her praises. But we have not fully trusted her. And with our growth so grow her demands. She will have no half service! Liberty! It is a word to conjure with, not to vex the ear in empty boastings. For Liberty means Justice, and Justice is the natural law—the law of health and symmetry and strength, of fraternity and co-operation.
Henry George. Progress & Poverty

Some writers have so confounded society with government, as to leave little or no distinction between them; whereas they are not only different, but have different origins. Society is produced by our wants, and government by wickedness; the former promotes our happiness positively by uniting our affections, the latter negatively by restraining our vices. The one encourages intercourse, the other creates distinctions. The first is a patron, the last a punisher.
Thomas Paine. Common Sense

The law may make a slave, but it is beyond the power of the law to make a freeman
Patrick Edward Dove

The World.

It must be remembered, first, that the present world is almost completely “upside down,” and consequently generalisations drawn from its present condition are not very relevant. Difficulties that seem overwhelming in an “upside down” world would become easily manageable if it were only put the right way up. Everyone has noticed, for example, how easily water is kept in a bucket held properly, and how hard it is to stop the water running out when the bucket is held upside down!
Frederick McEachran. Freedom – the only end.

The days of the nations bear no trace

And this is all that our watcher said.
Frances Brown

I would have loved liberty at any time; In my lifetime I would have worshipped it.
Turgot

Liberty is not a means to a higher political end. It is itself the highest political end…liberty is the only object which benefits all alike, and provokes no sincere opposition…
Lord Acton

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Printed & Published by D.S. Brooks for the AGG seminar Ulladulla July 2005

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photo credit: A Hermida

Dear Reader, I have been issuing stern warnings about how Australia’s house prices are too high and must correct soon.  I cannot say when the market will turn, but rabbit on that IT MUST!  IT MUST!  I try your patience.

Other Cassandras have come to the same over-priced conclusion.  Last week, The Economist added its name to the list of doubters.

The magazine regularly collates and publishes a survey of house prices for twenty leading economies.  They measure prices against rents, which sees home ownership as a business proposition, and highlights the ‘opportunity cost’ of owning your own home.

Guess what?  We won!  We won!  Hurrah!

Australia has the most overpriced houses in the advanced world.

The Economist has no money in the game, no preferred position on where house prices should be.  But they do have a keen eye for economic inefficiency and waste.  And that we have in spades.

Their table means housing swallows more of worker incomes in Australians than anywhere else.  We grind harder and take longer to pay off our (after-tax) mortgages. We live our working lives 90 days from bankruptcy – the inevitable consequence of not meeting that towering payment. We drive old cars, we eat poor food, we go without.

A housing bubble bursts when aspiring homeowners go on strike. Sales stop.  The speculators holding supply off the market to capture capital gains lose their reason for holding.  They sell. They all sell.

POP!

Next time you are in the inner suburbs of Melbourne, look around.  I defy you to find a building put up between 1890 and 1910.  Marvellous Melbourne had a boom and bubble that burst in 1889.  It took twenty years for demand to catch up with that monstrous over-supply.

This did not need to happen.  Our failure to slow property prices – with the fairest tax in the book,

Land Tax – has condemned us to re-live in full the Land Boom of 1889.  Will we ever learn?

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Michael Hudson

As first published in The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times, David S. Landes, Joel Mokyr, and William J. Baumol, eds., (Princeton: Princeton University Press, 2010):8-39. Also on Michael’s website.

A century ago economists could only speculate as to the origins of enterprise. It seemed logical to assume that entrepreneurial individuals must have played a key role in archaic trade, motivated by what Adam Smith described as an instinct to “truck and barter.” When a Mycenaean Greek site from 1200 BC was excavated and storerooms with accounting records found, the building accordingly was called “a merchant’s house,” not a public administrative center.[1]

Materialist approaches to history both by Marxist and by business-oriented writers have assumed that a timeless impulse toward gain-seeking determined status and political power. There was little room for Max Weber’s idea that a drive for social status might dominate economic motives and be the key to the evolution of enterprise and wealth. There also was little idea of temples and palaces playing a catalytic role in production or provisioning commercial ventures. Yet it was these semi-public institutions, not individuals on their own, that innovated the basic building blocks of enterprise long were assumed to be timeless: money, account-keeping to calculate gains, credit and basic contractual formalities.

To the extent that public institutions were recognized as economic actors, they were assumed to be an overhead incurred at the expense of enterprise, unproductive of an economic surplus, not promoting it. There was scant thought of rulers regulating markets, canceling personal debts and reversing land transfers as a way to enhance prosperity.

Translation of cuneiform records over the past century has changed these attitudes. A veritable explosion of colloquia over the past decade has analyzed the emergence of enterprise in Mesopotamia and its neighbors, in particular Dercksen (1999), Bongenaar (2000), Zaccagnini (2003), Manning and Morris (2005) and, earlier, Archi (1984), in addition to the compendious Civilizations of the Ancient Near East (Sasson et al. 1995).

Our own working group, the International Scholars Conference on Ancient Near Eastern Economies, has held colloquia dealing with the public/private balance (Hudson and Levine 1996), the emergence of urban and rural land markets (Hudson and Levine 1999), debt practices and how societies handled the economic strains they caused (Hudson and Van De Mieroop 2002), account-keeping and the emergence of standardized prices and money (Hudson and Wunsch 2004). These conference volumes have been bolstered by many books and articles presenting a complex view of the emergence of commercial enterprise.

The vast supply of Near Eastern tablets and inscriptions dealing with economic affairs is being translated free of the past generation’s ideological split over whether the economic organization of classical Greece was “ancient,” “primitivist” and “anthropological” in character as asserted by Karl Bücher, Karl Polanyi and Moses Finley, or “modern” as asserted by Eduard Meyer and Mikhail Rostovtzeff. (The basic documents in the century-old debate are collected in Finley 1979. For a recent discussion see Manning and Morris 2005.)

Half a century ago, Polanyi and Finley criticized “modernist” views of antiquity by claiming that it operated as part of a system more “traditional” and bureaucratic than entrepreneurial. The quasi-Marxist theory of Oriental despotism was even more extreme. But the past few decades of scholarship have seen the pendulum swing back away from such views, finding many innovative economic practices in the ancient world (Hudson 2005/06).
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