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Menzies’ heir

April 3rd, 2011

Most of the press coverage of Julia Gillard’s Whitlam oration has focused on her partisan digs at the Greens, and even then only in an “inside football” way, that is, on the likely short-term political implications rather than the validity or otherwise of her criticism.

The only responses I’ve seen pay any serious attention to what is (or at least is presented as) a major restatement of Labor’s vision have come from bloggers, such as Trevor Cook, Kim at LP and Jonathan Green. It’s also worth rereading this piece by Mark Bahnisch responding to an earlier speech. I broadly agree with much of this commentary, but I thought it would be worth offering a response of my own.

Both implicitly, by omission, and explicitly, in rhetoric and substance, Gillard’s speech represents a repudiation of the Labor tradition exemplified by Gough Whitlam, and even, in many respects, of the market liberal reworking of that tradition under the Hawke-Keating government.

It is a speech that could have been given, with absolute sincerity, by John Howard on behalf of the Liberal party, and marks, in both large and small ways, Gillard’s acceptance and celebration of the values and beliefs of the Liberal party as espoused by its leaders from Menzies onwards. Indeed, with more historically apposite examples (Reid, Deakin and Lyons for example, instead of Barcaldine, Curtin and Chifley) this would have made quite a good Menzies oration.

Let’s start with the omissions. Gillard’s speech contains no reference (either in words or substance) to poverty, unemployment, justice and injustice, equality, rights or freedom, let alone to such political ideas as capitalism, socialism or social democracy.

It contains only a single reference to unions, as “ensuring working people succeed together and that their work is recognised, rewarded and appreciated.” No suggestion, then, that workers might sometimes be in conflict with employers and that unions might represent and protect workers in that conflict.

The only reference to the global financial crisis is as a justification for running a Budget surplus so as to be prepared for emergencies. (I should make clear that I agree with Gillard on this point. But the GFC had a lot more lessons, which she has apparently forgotten or never learned, about the instability and inequity of global capitalism.)

Next, there’s the explicit repudiation of Labor traditions and adoption of Liberal rhetoric and policy viewpoints.

* Gillard asserts “We have moved beyond the days of big government and big welfare”

* In her attack on the Greens, Gillard appropriates the rhetoric of John Howard about “sharing the values of every day Australians, in our cities, suburbs, towns and bush, who day after day do the right thing, leading purposeful and dignified lives, driven by love of family and nation.”

* Gillard claims that Labor is ” a party of government with all the attachment to the political centre and to pragmatic decision making that comes with being a party of government.” This is historically the position claimed by the Liberals, as against Labor’s view that the purpose of achieving government is to change society for the better

* Gillard correctly enough accuses Abbott of “abandoned a 25 year consensus for reform in Australian politics and embraced a populist substance and style quite alien to our political traditions” and says that “the growing extremism of the Abbott Liberals is such, the party of Howard is disappearing from view.?” Implicitly, Gillard presents her own government as the legitimate heir of the consensus embodied by Howard’s.

* Gillard embraces a crowding out theory in which “the private sector will employ more people, spend more money, and build more projects – and that means unless the government pulls back on spending, we will be chasing the same scarce resources.”

Finally, there’s Gillard’s own statement of “what Labor stands for, what we aspire to achieve, what our culture is and our role as a party of government.” According to Gillard

The historic mission of our political party is to ensure the fair distribution of opportunity. From the moment of our inception our mission has been to enable the son of the labourer, the daughter of the cleaner, to have access to same the opportunities in life as the son of the millionaire, the daughter of the lawyer.

Note that, even here, Gillard cannot bring herself to use the word “equality”.

The Liberal Party of Australia, in its Federal Platform, is not so squeamish, asserting that it believes

In equality of opportunity, with all Australians having the opportunity to reach their full potential in a tolerant national community.

The Liberals then go well beyond Gillard, asserting their belief

In a just and humane society, where those who cannot provide for themselves can live in dignity.

Nothing in Gillard’s speech suggests any awareness that there are Australians who cannot provide for themselves, or any desire to do anything for them. Quite the contrary. The theme of “those who do not work, neither shall they eat” is stated repeatedly, for example with reference to being the “party of work not welfare”.

It might be argued in Gillard’s defence that, while the Liberals espouse the rhetoric of equality of opportunity, a Gillard-led Labor party will actually deliver it. On this score, Gillard’s record speaks for itself. As Minister for Education, and as Prime Minister, she has maintained the SES-based system of funding private schools, introduced under the Howard government, which delivers huge sums to the richest schools. This is an explicit repudiation of Whitlam, who resolved the bitter and sectarian State Aid dispute with a needs-based funding system. If Gillard is delivering equality of opportunity, she is doing so with the policies of John Howard. Despite announcing a review of the system as minister, PM Gillard has promised no change as a result.

Finally, of course, it might be argued that Gillard is right to adopt the views of the Liberal Party. On economic policy, such a claim seemed plausible during the years of the Great Moderation, when market liberalism seemed to have resolved the chronic problems of capitalism. To maintain it in the light of the GFC puts Gillard in the absurd company of Alan Greenspan, who recently observed

Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s “invisible hand” that is unredeemably opaque. With notably rare exceptions (2008, for example), the global “invisible hand” has created relatively stable exchange rates, interest rates, prices, and wage rates.

As regards equality of opportunity, it’s been pointed out many times (including here and in more detail here) that equality of opportunity can’t be sustained if its combined with gross inequality of outcomes. The conversion of the United States from one of the most socially mobile countries in the developed world to the most sclerotically immobile illustrates this fact.

Gillard’s speech, coming from someone who is still nominally a member of Labor’s “Socialist Left” faction, is a clear and well-argued exposition of the position of today’s ALP. It seemed, briefly, that Kevin Rudd might promote a rethinking of that position but the moment passed and is unlikely to be recaptured. Any positive thinking about Australia’s future will have to come from outside the Labor party.

UpdateMore from Bernard Keane

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  1. April 5th, 2011 at 12:29 | #1

    Paul and Doug rather made my points for me, but the Democrats proved they could do very well without Chipp. Moreover, the Democrats never achieved much success outside the federal arena and South Australian parliament (brief representation in WA and Tas, longer term in NSW but for most of the time only 1 MP). The Greens now have 19 state/territory MPs, and will get to 20 if Jeremy Buckingham beats Pauline Hanson. In addition the Democrats probably never had more than 10 local councillors at a time, whereas the Greens now have more than 100.

    That’s not to deny that Bob retiring will present significant challenges for the party, particularly if Adam Bandt can’t hold his seat, but the implication of collapse is unlikely to be fulfilled.

  2. johncanberra
    April 5th, 2011 at 19:41 | #2

    Very good piece John.
    I am puzzled as to why Julia has moved so far to the right. She did indeed start on the left. She was never Marxist left, but she used to be concerned about equity.

  3. Alice
    April 5th, 2011 at 20:11 | #3

    @johncanberra
    Ill just bet its because the boys club on the right on NSW Labor have got hold of her and anyone else who ends up as a likely power candidate.

    Same as NSW – “you from the left can be our puppet leader as long as you do what we say.” What that means is she is from the left but only with the support and patronising patrongae of the Labor right. The right is the dominant faction. It is more socially conservative (about as conservative as liberals – no difference which is why they are a) in the wrong party and b) are badly stuffing up angry labor voters.

    per Wikipaedia “The Right is most famous for its support of Third Way policies over Labor’s traditional social democratic/democratic socialist policies, such as the economic rationalist policies of the Hawke and Keating governments, such as floating the Australian Dollar in 1983, reductions in trade tariffs, taxation reforms, changing from centralised wage-fixing to enterprise bargaining, the privatisation of Qantas and Commonwealth Bank, and deregulating the banking system. These reforms foreshadowed the high growth economy of the 80′s, 90′s and into the new millennium.”

    As the Prof might say it was a whole lot of zombie economics, practised by the living dead, that damn well didnt work, has created a huge impost and cost on many of us that has nearly killed us and the labor right swallowed zombie economics hook, line and sinker, and they are still in there pushing their idiot ideas in federal treasury and now labor voters have woken up dont like the main meal and are sending it back.

    Serves them right.

  4. Jill Rush
    April 6th, 2011 at 00:45 | #4

    I too was most disappointed with the speech from Gillard – and with her lack of capacity to deliver decent policy. She talks about things she has no idea about because she is frightened that not having a family of her own means that people will have no faith in her. It would be better for her to stop trying to dog whistle as it has not worked in the polls for her. My family rises early and works hard blah blah but I really dislike being patronised by someone who can never understand my situation even if she had empathy. She evokes the Howard white picket fence as if she can be the only one who is different. Personally I was pleased to have a woman as a PM but the comparison to McMahon rings all too true – even to the ears. And Abbott has those too – is there no way out of the land of Big Ears and Noddy?

  5. April 6th, 2011 at 09:17 | #5

    Unfortunately an excellent critique of Gillard’s speech. Unfortunate because of the worrying implications for Australia’s future. As you say, in this speech Gillard lays claim to the heritage of Howard. She plainly rejects the aspirations of those within the party who thought the time right to reclaim the Party’s position as the source of progressive policy and protectors of social justice in the Australian political spectrum. Whatever might emerge from the upcoming National Conference there will be no move to reclaim the social democratic mantle. They left that behind a couple of decades ago. I will never forget then leader Simon Crean’s contemptuous public dismissal of the idea that the ALP was a social democratic party. This position has only strengthened since.

    You conclude with the comment that: ‘Any positive thinking about Australia’s future will have to come from outside the Labor party.’ I worry that this possibility is somewhat constrained by the features of our electoral system. The ALP, having displaced the Coalition from the political middle ground with their push to the right during the Hawke-Keating years, believes it can continue to ignore the progressive vote because in Lower House contests it will come back via preferences in any election. Gillard’s speech plainly reflects this view. They may unfortunately be right. The source of progressive policy in Australia is, and I think will remain, The Greens.

    Unless the Greens fragment during the post Bob Brown era which surely can’t be more than another term away, the Greens’ vote will continue to grow. Residual progressive Labor voters will give up in despair and new progressive voters without historic allegiance to the ALP join the electorate. Even so I can’t see the Greens achieving in the next couple of election cycles a primary vote much more than 15%. Although the Greens’ presence in Upper Houses may continue to strengthen the increasingly popular strategy in the major parties of swapping preferences will continue to severely restrict the Greens ability to win Lower House State and Federal seats. Thus the possible influence of progressive policy thought influencing the shape of Australia’s future is severely restricted.

    In respect of the future challenges confronting this country my knowledge is restricted to the environmental crisis we are already confronting and the oil crisis that will soon be on us. Much better heads than mine have argued that if we don’t act very soon on the huge task of restructuring demanded by the crisis of climate change the stress placed on all parts of our economy by the oil price rises generated out of peak oil will severely constrain our ability to take action on climate change.

    The climate scientists under the umbrella of the IPCC say that to have a 50/50 chance of avoiding runaway climate change global emissions including ours must peak by 2015 and thereafter fall to something like 80% below the 2000 levels by 2050. Given the current state of Australian politics and the attitudes of our major political parties to this crisis (just one among many) does anyone see much possibility of achieving what is required? Gillard’s speech bodes very ill for our collective future.

  6. Alice
    April 6th, 2011 at 09:36 | #6

    Even now we have Albanese deciding whats best for NSW (and Macquarie Bank no doubt) and thats a second airport. So here it is back doing the rounds AGAIN…AGAIN and AGAIN. Thats the trouble with Labor. Nothing much happens. The second airport should have been built absolutely years ago but now we need rail so citizens can actually get to work. Swam talks about lost economic opportunities from no second airport. What about all the lost economic opportunities from people sitting in miles of unproductive traffice everyday?

    Federal Labor should just give the money to OFarrell, stay out of it or go back to fighting amongst themselves and designing the next piece of completely imaiginary infrastructure.

  7. Alan
    April 6th, 2011 at 10:21 | #7

    The Greens do not need to be passive victims of a preference lock-out. There is no reason for the Greens to ever preference rightwing ALP members. Over a few elections that will have a significant impact.

  8. April 6th, 2011 at 14:20 | #8

    @Alan
    Do you mean that they should preference against right wing Labor candidates or simply abstain from directing preferences? If the former, whoever the Greens preference the votes would in most cases eventually leak back to the ALP ahead of the Coalition. The only exception I can see might be when there is an effective and well supported independent candidate to preference.
    Given the left orientation of nearly all Greens voters wouldn’t they, of their own accord preference Labor ahead of the Coalition? So if the Greens did not direct preferences they would leak back to Labor anyhow. Maybe there’s something I’m overlooking, but at the moment I can’t see what preference strategy the Greens can use to ‘fight back’ effectively at an election.

  9. Monkey’s Uncle
    April 6th, 2011 at 14:34 | #9

    As much as I am not the biggest fan of the Greens leftist economics, environmental alarmism and so on, the Greens are still somewhat preferable to the other parties on issues like civil liberties and adopting a sensible approach to the failed war on drugs.

    The Greens are really the only significant political party in Australia that stands for anything real at all. The problem with the ALP, the Coalition, Family First, Xenophon et.al is that they really stand for nothing except a similar brand of lowest-common-denominator, small-target, populist, spin-oriented politics. A bit like competing brands of breakfast cereal that are all really just similar combinations of refined carbohydrates.

    I can respect a party that stands for something real, however much it may not be everyone’s cup of tea, over a party or parties that stand for nothing.

  10. Monkey’s Uncle
    April 6th, 2011 at 14:46 | #10

    Doug Evans :

    Unless the Greens fragment during the post Bob Brown era which surely can’t be more than another term away, the Greens’ vote will continue to grow. Residual progressive Labor voters will give up in despair and new progressive voters without historic allegiance to the ALP join the electorate. Even so I can’t see the Greens achieving in the next couple of election cycles a primary vote much more than 15%.

    I have to disagree. Most of the evidence suggests that the Greens will struggle to gain support beyond the level they are now receiving. In the NSW election the Greens only slightly increased their vote, despite the fact that the collapse in Labor’s support and the coinciding of Earth Hour on election day presented a rare opportunity to make much more substantial gains.

    The main reason the Greens struggle to gain support beyond a certain level is that they tend to poll better in more affluent areas, particularly among higher-income professionals, and yet most of their economic policies are not really that beneficial to higher-income earners (with the possible exception of some of those who work in the public sector). The Greens contradict the general trend that voters usually vote primarily according to their economic interest, and secondarily according to their social values. Greens voters generally vote their social values over their economic interest. But that puts a strict ceiling on how much their support can grow. The Greens are something of a niche market in politics.

    Indeed, it is just as likely that the Greens support may decline once the stereotypical ‘doctors’ wives’ constituency starts to realise that a lot of Greens policies, such as bringing back inheritance taxes, are not particularly to their interests.

  11. April 6th, 2011 at 16:55 | #11

    @Monkey’s Uncle
    Hmmm! You may be right; but as I understand it The Greens’ vote in both State and Federal arenas has increased steadily (if not as fast as they might hope) for several elections now. This also includes the NSW State election where their vote was up by 1.5% Statewide (?) despite their foolish handling of the Israel boycott issue. Without the sort of in your face crisis that I described originally, and which the major parties are patently failing to figure into their thinking, I think there almost certainly is an upper limit to their vote in a comfortable and fundamentally conservative electorate but I reckon there is some leakage yet to come from the ALP. This especially if Gillard et al make as big a mess of this term as they did the last. But this is no more than speculation on my part.

  12. Alice
    April 6th, 2011 at 19:20 | #12

    @Alan
    I quite agree. The Greens lost my vote in the recent state election because i coudlnt get a clear picture of where their preferences were going (and mine were not going to labor) and no the Greens should not preference a party dominated by a right wing faction.
    Unless labor and liberal pull their right wing horns in and get more moderate like the rest of the electorate, the Greens will do well by telling them both to get lost.

  13. Alice
    April 6th, 2011 at 19:34 | #13

    The latest new is Obeid could somehow manage to buy an 11 million dollar house in Hunters Hill in Sydney on his politicians wages of 130,000K a year….

    Yeah sure he could which is why he and his ilk are gone.

  14. Alice
    April 6th, 2011 at 19:39 | #14

    @Monkey’s Uncle
    MU – its the oppressed indebted youth excluded from the housing market, indebted due to their education costs, suffering high unemployment if they dont get a higher education, caught between a rock and a hard place, who are giving their votes to the Greens.

    Let me know I told you first. Its no more than what my students are telling me. They can listen or they can keep screwing the youth of this country – but youth become adults and adults carry grudges and old folk die. Both major parties have the choice to listen or they can ignore.

  15. Christopher Dobbie
    April 7th, 2011 at 09:07 | #15

    @Alice

    Interesting quantification of this done recently by Steve Keen:

    “…since 1985, has doubled the relative cost of buying a house. Since the early 1960s, when the oldest Baby Boomers were buying their first properties, it has tripled the cost.”

    @Monkey’s Uncle

    The Greens will do well when the present flush of fossil fuels rushing through the economy starts to decline. Until then they’ll still increase incrementally but won’t take large swaths of support while the economy relies on exponential growth.

    By the way, how many ‘doctor’s wives’ are there? Surely we wouldn’t have a doctor shortage if at 1 in 10.

  16. Hopeful
    April 7th, 2011 at 09:43 | #16

    I agree that Julia Gillard, like all Labor leaders since Whitlam, appears to be moving to the Right and the movement seems to have been accelerating with each leader. However the Greens look like they just might fill the void and we still have the unions. So, what I see emerging is, hopefully, not so much the decline of the Left as a reshuffling where three of possibly four strong parties might emerge. This just might be better than the virtually two party system we have now.

    I would also like to ask just what do you think is wrong with being realistic? Aiming for the children of the poor having the same access to opportunities as the children of the rich is, I believe, as close to equality as it possible to argue until the infrastructure problems have been addressed and I agree that equality of opportunity for adults is important as well but this, I believe, also depends on addressing the infrastructure.

    Do you really think it would be possible for Gillard, Rudd, or anyone else, to tear down overnight all the inequalities the the Howard government put in place, such as financial government support for all private schools and the destruction of the very good government run employment offices we had under the Hawk, Keating governments.

  17. Ernestine Gross
    April 7th, 2011 at 10:00 | #17

    Christopher Dobbie ,

    Yes, it is widely known that the cost of buying a house (relative to wages) in Sydney, and Melbourne, particularly close to the CBD, has increased steadily. However, not uniformly across the metropolitan areas and not across the whole country to the extent you portray. Moreover, the housing stock has changed in quality (also not uniformly) and the income tax rates have declined (but GST has been introduced). Banks lend on after tax income and expenditure (which is a manipulable number).

    The first baby boomers would have been at most 20 years old in the early 1960s. What about the first baby boomers who, in the late 1960s and early 1970s bought old and dilapidated houses and spent their evenings and weekends ‘doing them up’ – in Balmain, in Glebe, in …..? Not to the standard of airconditioning, internet access, expensive kitchens, …etc.

    So I don’t buy the baby boomer argument. The details of ‘the economy’, including the regulatory framework, have changed and it is in these changes where we can look for reasons why young people in big cities have great difficulties buying houses when they are in their 20s.

  18. jakerman
    April 7th, 2011 at 12:02 | #18

    @Christopher Dobbie

    Most of that doubling occured between 1999 and 2005, the period where the mean housing priced jumped from 4 times average anual income to nearly 8 times. The change that coincided with this jump was innovative bank lending. I.e the rise in housing price relative to wages coincided with a change in bank lending practices. It was a Ponzi scheme that to conitnue required ever increasing amounts of debt.

    The Greens will do well when the present flush of fossil fuels rushing through the economy starts to decline. Until then they’ll still increase incrementally but won’t take large swaths of support while the economy relies on exponential growth.

    In a three way fight it might be difficult for the Greens to make incremental gains from 12% overall without ousting labor in more an more seats. I wonder if they might either break through or plateu/receed until they can breakthrough.

  19. Christopher Dobbie
    April 7th, 2011 at 18:42 | #19

    @Ernestine Gross

    I’ll defer to the expert; http://www.debtdeflation.com/blogs/

    @jakerman

    Well they certainly have a beachhead now. I still hold with my prognosis that all gains from here on will be incremental until the economy is forced to change with the coming energy crisis. Far too many incomes depend on things staying the way they are for broad voting intentions making a different political reality (Though will a caveat that I’d love to be proved wrong.).

    In the mean time I’d hope that the Greens seriously take to learning how the economy works.

  20. Monkey’s Uncle
    April 8th, 2011 at 11:42 | #20

    Ernestine Gross :
    Christopher Dobbie ,
    Yes, it is widely known that the cost of buying a house (relative to wages) in Sydney, and Melbourne, particularly close to the CBD, has increased steadily. However, not uniformly across the metropolitan areas and not across the whole country to the extent you portray. Moreover, the housing stock has changed in quality (also not uniformly) and the income tax rates have declined (but GST has been introduced). Banks lend on after tax income and expenditure (which is a manipulable number).

    To suggest that a slight shift in the tax mix from income tax to consumption taxes, and a flow-on effect to bank lending practices, is responsible for a vast increase in house prices seems a bit far-fetched. In any case, the shift in the tax mix has been relatively small compared to the changes in house prices. And any increase in consumption taxes would increase the cost of living and thus the real (perceived) value of wages anyway.

    Ernestine Gross :
    ,
    The first baby boomers would have been at most 20 years old in the early 1960s. What about the first baby boomers who, in the late 1960s and early 1970s bought old and dilapidated houses and spent their evenings and weekends ‘doing them up’ – in Balmain, in Glebe, in …..? Not to the standard of airconditioning, internet access, expensive kitchens, …etc.

    I agree that some of the vast increase in housing costs can be attributed to an increase in the size and quality of housing. But even adjusting for this, it is still substantially less affordable to buy even a modest house in a major capital city today than it was in the past.

    :
    ,
    So I don’t buy the baby boomer argument. The details of ‘the economy’, including the regulatory framework, have changed and it is in these changes where we can look for reasons why young people in big cities have great difficulties buying houses when they are in their 20s.

    This is a somewhat vague, nebulous statement. You seem to be implying that some sinister market forces are to blame for all these problems, but without much further detail or specifics.

    The main reasons for house prices increasing so much are government policies such as restrictions on new land for development, as well as exempting primary residences from capital gains tax and most means tests (which has the effect of distorting the market by encouraging more investment in increasing the value of homes at the expense of investing elsewhere in the economy). The point is that these are not largely failings of the free market, they are failings of political and regulatory distortions of the market.

    Governments have deliberately inflated house values because it is in their interests to do so. Because there are more homeowners and those paying mortgages than there are individuals trying to purchase homes in the short-to-medium-term, there are more votes to be won than lost through high house prices. And with an aging population creating problems for budgets and public policy, artificially inflating the home values of retirees serves as a kind of ‘hidden tax’ on younger workers to prop up the asset base of retirees.

  21. Ernestine Gross
    April 8th, 2011 at 19:13 | #21

    @Christopher Dobbie

    Thank you for the debtdeflator blog site. I am familiar with Steve’s macro-economic models and Minski’s theory.

    My post contained 3 related points. Firstly, the limitations of macro-economic models. Second, macro-economic models invite speculation as to why or what and your reference to baby boomers is an example. My third point contains my suggestion as to where you have to look for the reasons as to why young people in big cities have difficulties buying a house.

  22. Alice
    April 8th, 2011 at 20:34 | #22

    @Ernestine Gross
    I can tell you why Ernestine. I have a 19 year old boy and a 32 year old stepson who is an ambo officer. The former wanted to work full time for a year after leaving school but could only get casual jobs. Sometimes two shifts, sometimes 3, sometimes 5 sometimes none. Unpredictable income. Has now gone to uni and is as poor as a churchmouse and requires heavy subsidisation. The 32 year old saved a deposit – wasnt enough on his salary to get the loan and we kicked in 50K to help. So all this subisidisation is coming from us and we are both working away at the risk if we stop – all subsidies to our children from us (and none from the government) will stop also. My mother stopped working many years before me but she had the good fortune to be married to a long standing public servant (super) who was also a war veteran.

    You do what you have to do.

  23. Ernestine Gross
    April 8th, 2011 at 20:37 | #23

    @Monkey’s Uncle

    1. What conclusion would you reach if you were to read my post in total instead of segmenting it into three paragraphs as if they were totally unrelated?

    2. Do you have evidence to contradict what I have said, namely banks lend on after tax income and expenditure pattern, the latter of which is manipulable (ie understated)?

    3. Nowhere did I suggest what you write I did, namely “To suggest that a slight shift in the tax mix from income tax to consumption taxes, and a flow-on effect to bank lending practices, is responsible for a vast increase in house prices seems a bit far-fetched.”

    As per my last paragraph, details of institutional changes, locally and internationally should be looked at instead of using phrases such as ‘baby boomers’.

    4. “This is a somewhat vague, nebulous statement. You seem to be implying that some sinister market forces are to blame for all these problems, but without much further detail or specifics.” MU, who is writing nebulous statements here? What exactly do you mean by ‘market forces’? More specifically, do you belong to that group who believes, without theoretical or empirical justification, that the ‘market forces’ in the fruit and vegitable markets are the same as in financial markets? If so, I would not agree.

  24. Ernestine Gross
    April 8th, 2011 at 21:09 | #24

    @Monkey’s Uncle
    Part 2

    5. Coming now to what you say: “The main reasons for house prices increasing so much are government policies such as restrictions on new land for development, as well as exempting primary residences from capital gains tax and most means tests (which has the effect of distorting the market by encouraging more investment in increasing the value of homes at the expense of investing elsewhere in the economy). The point is that these are not largely failings of the free market, they are failings of political and regulatory distortions of the market. ”

    I am not convinced.

    a) To the best of my knowledge, there is no restriction on new land for development in the country NSW, the country QL, country Victoria and probably also not in WA and in the NT. Why isn’t the ‘free market’ providing jobs in these country areas?

    b) I do realise some economists try to make an argument against “exempting primary residences from capital gains tax and most means tests (which has the effect of distorting the market by encouraging more investment in increasing the value of homes at the expense of investing elsewhere in the economy).”

    There may be an argument to put a limit on the dollar value of the primary residence which is exempt from capital gains tax for properties that are transacted frequently (but this might also be achievable via increasing the top marginal income tax rate – this is a maybe – and prohibiting corporate loans to corporate managers.)

    I am strongly against removing the exemption for everybody else. Home ownership bestows a degree of personal independence of individuals, independence from being exploited by the wastefulness of corporate ways of doing business (growth strategies, mergers and acquisitions, marble temples, trying to influence governments) and paying their ‘senior’ managers silly (large) amounts of money. Personal independence of individuals is important for both, the working of that part of a market economy that is not merely concerned with shuffling paper and for democracy. A person who has to give all his little spare cash either to banks or to corporate enterprises or to governments has no ‘freedom’ – he or she is a wage-debt-tax slave.

    Finally, and still under the same point, if you wish to reduce the apparent inequity in the capital tax treatment, I suggest you abolish first the tax deductibility of interest for investors in real estate. I have no objection of people buying a second, third, fourth house or unit with their after tax income, including paying of a mortgage with after tax income. It seems to be a much better investment for retirement then putting money with superannuation fund managers and corporate managers. The corporate law is such that shareholders have basically no say in what these managers are doing with their money.

  25. Monkey’s Uncle
    April 9th, 2011 at 00:29 | #25

    Ernestine Gross :
    <a href="#comment-277464" rel="nofollow"
    1. What conclusion would you reach if you were to read my post in total instead of segmenting it into three paragraphs as if they were totally unrelated?

    Much the same conclusion I reached before. Are you suggesting the fallacies I outlined in each individual paragraph are negated or surpassed by some grander narrative that can only be appreciated in the totality of the three paragraphs? If so, I am not really sure that I see it. But you are welcome to that belief if you wish. Or would you have preferred me to have quoted the entire post in one big slab? Do you think that would have assisted in clarifying the issues at stake?

    Ernestine Gross :

    2. Do you have evidence to contradict what I have said, namely banks lend on after tax income and expenditure pattern, the latter of which is manipulable (ie understated)?

    No, because I never disputed this fact. I merely suggested it was a minor point that would have negligible impact on house prices compared to the other factors I mentioned, and as such was not really a fruitful area of inquiry.

    We are only up to point 2, and it is not looking good for a productive discussion.

  26. Ernestine Gross
    April 9th, 2011 at 07:22 | #26

    @Monkey’s Uncle

    I agree it is not looking good for a productive discussion but for different reasons.

    You try to suggest you have outlined falacies in my initial reply to a post that talks about ‘baby boomers’ and home ownership affordability. I agree you tried. But you did not succeed because, as you say in your second last paragraph, you never disputed that which I actually wrote.

    As for the topic of this tread, I understand during Menzies’ time home ownership was a desirable goal of many if not most Australians. Who is the heir of Menzies?

  27. Ernestine Gross
    April 9th, 2011 at 09:56 | #27

    @Alice

    Like your son, James Packer also got a subsidy from his parents (and I got a subsidy from mine but not of the same size!!) These are good examples of the difference between ‘opportunities’ in words and in outcomes.

  28. Ms H
    April 10th, 2011 at 01:47 | #28

    Bring back the democrats…

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