We’re only ‘doing it tough’ out of envy

That’s the title of my latest piece in Crikey, over the fold

The perception that middle-class Australians are ‘doing it tough’ is one of the constants of Australian politics. As Treasurer, in 2007, Peter Costello responded to this claim with the observation:

People always have worries. But if you are worrying about getting a job, your worry should be a lot less today than 10 years ago. If you are worried about interest rates they are a lot lower than they were 10 years ago. If you are worried about incomes, they are higher than they were 10 years ago (Costello 2007, quoted by Hamilton, Downie and Yu 2008).

Four years later, announcing another round of good economic news, his successor Wayne Swan, felt the need for the concession ‘we know we have many households still doing it tough,”

This statement, taken literally, is quite true. More than 2 million people, including most people in unemployed households and a large proportion of the indigenous population, live below the poverty line, currently estimated at about $28 000 a year for a couple with no children. But it is safe to say that neither Costello nor Swan was primarily addressing this group. Rather they are addressing those, like the audience of Alan Jones’ radio program (dominated by self-funded retirees for whom the poverty rate is effectively zero), who see themselves as living on ‘Struggle Street’ despite living standards that would have been regarded as luxurious a generation ago.
There is little in the economic data for the population as a whole to support the perception that Australians are doing it tough. Average weekly earnings have risen nearly 25 per cent since Costello made his statement, handily outpacing inflation. While the top 1 per cent have done better than anyone else, as elsewhere, household incomes have risen across the board.

Why, then, do people see themselves, or the community as a whole, as ‘doing it tough’?

One explanation that is often mentioned is that of mortgage stress. The sharp increase in house prices that took place in the early 2000s meant that new home buyers have taken on levels of debt that are historically unprecedented even relative to incomes. Moreover, with low inflation and correspondingly lower growth in nominal incomes, the long-established pattern in which the ratio of mortgage repayments (fixed in nominal terms) to income fell rapidly after a few years, has ceased to apply. A mortgage that is hard to repay when it is first taken out, remains hard to repay for years afterwards, and may become impossible to meet if one earner becomes unemployed or withdraws from the workforce to bring up children.

There was undoubtedly an increase in mortgage stress in the early years of this century, when the ratio of repayments on new loans to household disposable incomes rose above 30 per cent (RBA 2012). But even in the mid-2000s, the majority of middle-income households did not have outstanding mortgages and most of those who did owed less than $200 000 (Hamilton, Downie and Yu 2008). Since then, the ratio of repayments to income has fallen and is now at much the same level as in the mid-1980s.

The ratio of household debt to income has also fallen, though not quite so fast. The rapid increase in the debt ratio from 1990, when it was below 50 per cent for the average household, to the mid-2000s, when it was nearly 150 per cent, certainly caused plenty of alarm, even though it was more than matched by the growing value of equity in housing. But the debt ratio peaked in 2006. Households, which had negative levels of net saving at the height of the housing boom, are now saving around 10 per cent of their income, which implies that debt levels may fall. The much maligned increase in public debt has in fact been part of a rebalancing which makes Australia’s debt levels, as a whole, more sustainable.

Far from reflecting a struggle to put a roof over our heads, the debt boom of the 1990s and early 2000s was associated with a massive upgrade in the consumption of housing services. The floor area of the average new house rose greatly (an increase of around 40 per cent just between 1984-85 and 2002-03, ABS 2005), and the cost and quality of standard fittings increased as well. For example, granite benchtops, an example of luxurious excess as recently as the 1990s, became, and remain, commonplace.

Another possible explanation of the ‘doing it tough’ perception arises from inconsistent responses to price variation. Despite sustained low inflation and falling interest rates, many Australians perceive themselves as facing ‘cost of living’ pressures. Over the past decade some highly salient prices such as the retail price of electricity have risen sharply, but consumption continued to grow until recently, driven largely by the increased use of airconditioning. By contrast the cost of telecommunications services has fallen , but households have responded to lower prices and the availability of new products by increasing their total expenditure. It is easy enough, though misleading, to see this as a story of ever-increasing bills for everything.

Despite all of these partial explanations, it is hard to escape the conclusion that the ‘doing it tough’ perception is nothing more than a manifestation of some of our less appealing human propensities: envy and chronic dissatisfaction. This can be seen all the way up the income scale, to the point of British bankers who complain that they can’t live on a million pounds (roughly 2 million dollars) a year.

News media have an obvious commercial interest in telling stories that make their audiences feel victimised, and politicians have made the judgement that telling voters the truth is too costly. At current rates of growth, incomes will double by 2050, but we will doubtless still be living on Struggle Street.

Ref: Hamilton, C.; Downie, C.; and lu, Y. H., The State of the Australian Middle Class, The Australia Institute 2008.

58 thoughts on “We’re only ‘doing it tough’ out of envy

  1. see http://www.smh.com.au/federal-politics/federal-election-2013/queensland-the-exception-as-labor-to-preference-greens-before-all-in-senate-20130817-2s3er.html

    katter’s mob will win a senate seat in QLD on labor preferences! that will deprive the greens of any chance of winning the balance of power in the senate.

    any one of the DLP, nick no pokies and katter can joping with labour to tie in the senate 38 all. all three will be needed to pass government bills.

  2. A large part of the problem is that the Right, apart from a few single issue exceptions, own the public debate in Australia.

    I can’t believe how woeful the ALP has been at articulating a clear and positive social democratic message. Rudd is better than Gillard but he disappoints me almost every time he speaks. So wooden, so reactive and so lacking in vision. Yawn.

    I also share Ikon’s concerns about the bottom 10% who really are doing it tough. It is shameful that the ALP has not boosted unemployment benefits by $50 or thereabouts per week.

  3. @Mel labour now has about 1/3rd of the primary vote as loyal. the greens are a different constituency of middle class radicals. the liberals are doing well in winning working class voters.

    The greens are no more than a reincarnation of the 19th century British Tory Radicals with their aristocratic sensibilities that combines strong support for centralised power with a paternalistic concern for the poor.
    • 19th century Tory radicals opposed the aesthetic ugliness it associated with an industrial economy.
    • Like the 19th century Tory Radicals, today’s liberal gentry see the untamed middle classes as the true enemy. “Environmentalism offered the extraordinary opportunity to combine the qualities of virtue and selfishness”

    Environmentalists have an aristocratic vision of a stratified, terraced society in which the knowing ones order society for the rest of us.

    many supposedly left-winger who thought they were expressing an entirely new and progressive philosophy as they mouthed the same prejudices as Trollope’s 19th century Tory squires: attacking any further expansion of industry and commerce as impossibly vulgar, because ‘ecologically unfair to their pheasants and wild ducks’.

    True to its late-1960s origins, political environmentalism gravitates toward bureaucrats and hippies: toward a global, big-brother government that will keep the middle classes in line and toward a back-to-the-earth, peasant-like localism, imposed on others but presenting no threat to the elites’ comfortable lives.

    The greens are full of meddlesome preferences whereby “the elitist, who somehow thinks that his or her own preferences are ‘superior to,’ ‘better than, ‘ or ‘more correct’ than those of others, tries to control the behaviour of everyone else, while holding fast to his or her own liberty to do as he or she pleases.”

    Big HT: http://www.city-journal.org/2010/20_3_american-liberalism.html

  4. @sam #21

    Economist and Labor member Andrew Leigh’s recent book Battlers and Billionaires is all about inequality in Australia but also about perceptions and feelings, so gives some info on whether “middle class angst” is relevant.

    Leigh says the the “great compression” of incomes up to the 1970s changed to the “great divergence” up to 2010, with the percentile distribution of f/t adult wage earners increasing steadily from 15% at the tenth to 59% at the ninetieth. The equalising effect of tax and welfare payments only partly moderates this. People at the bottom and middle have higher real incomes, but “relative poverty”, being the % of people living on less than half the median income, has increased in the 80s, 90s, 2000s, with greater area and family concentrations. The actual distribution of wealth is that the bottom quintile has 1% and the top has 62%; the income share of the top 1% has doubled, with the top 0.1% tripling. Internationally, Australia ranks ninth highest in inequality amongst 34 advanced nations.

    The Gini coefficient rose from 1980 to about 2000 and has been a bit up and down since. His conclusion is that one-third of the rise in inequality since 1980 is due to technology and globalisation, 1/3 to de-unionisation and 1/3 to tax cuts. The education quantity increase (quality seems absent) slightly moderated these outcomes.

    To examine the subjective aspect, he adapts relevant 2010 results from the HILDA longitudinal survey (Melb Inst) and Aust Election Study (ANU). On the quality of life measures, the middle and upper income groups do better than the lower on “pain and violence” . Under the heading of “happiness”, job and neighbourhood satisfaction is greater up the income ladder but not hugely different, except that the middle (38%) and upper (41%) income group are much more likely to “often feel rushed” compared to lower income group (25%). But “stress” as a version of “doing it tough” seems a long stretch.

    From the AES it seems clear that political engagement – such as protesting, lobbying, petitioning, approaching govt – increases up the income scale. It’s not clear if this signifies more dissatisfaction from the higher groups over the 2005-2010 period, or just that politics is not an arena of lower class participation.

    His Chapter 7 on what Australians want is most interesting. Those favouring more egalitarian wealth distribution has fluctuated between 70-76% from 1997-2010 while those favouring more spending over less tax has steadily increased from 23 to 58%. He infers growing support for equality based on tax cuts as usually regressive and social spending progressive, but another view could be that middle class expectations to access “welfare” are more entrenched than ever.

  5. It may be called envy, but in Australia there is a lot of discrimination, like this.
    A retired couple on a modest income o less than $50,000 combined has to pay some $400 tax and another $350 medicare levy , while a single self funded retiree with an income of $100,000 pays no tax nor medicare levy.

  6. Envy is not an objective measure. It is a relative measure, with people always comparing their situation with another persons. An unfavourable comparison produces envy or dissatisfaction whereas a favourable comparison produces satisfaction. Rawls assumed this emotion when he formulated his theory of Justice. As such envy is a very significant function of our welfare state, sadly.

  7. Returning to Australia after 10 years abroad, I’m shocked at the high level of living standards expected by the “average Australian”, and hence their perception of “doing it tough”. The concept of living within one’s means has all but disappeared from the concept of “social fairness”. I’m afraid our government has sold public assets which will now degrade in the name of profits, to pay for instant gratification of so-called “under classes”. I put these terms in quote marks, as they mean nothing in reality.

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