Shorten wins the tax debate

Bill Shorten doesn’t have a lot of public support, a fact that reflects his background as a machine politician with a penchant for self-promotion. For a long time he has been accused of pursuing a “small target strategy”, hoping to win by default against Tony Abbott.

The latest developments in tax policy ought to prompt ] a reassessment. The nature of policy debates like this is that the government holds all the cards: control of the political agenda, expert Treasury advice, and the capacity to manage the media with judicious leaks.

Despite all of this, Shorten has left Malcolm Turnbull and Scott Morrison looking flat-footed. Their preferred option of raising the GST rate and expanding its base is dead in the water, but not yet formally disavowed. Opposing it was an easy choice for Shorten, but still one that required him to override some supporters within the ALP.

The general assumption was that the government would soon announce Plan B. But Shorten has now beaten them to the punch. His proposals to limit negative gearing and scale back the concessional treatment of capital gains are more substantial than anything they are likely to contemplate in relation to property taxation. And Labor has already signalled willingness to limit tax concessions for superannuation.

So, unless the government is willing to do something really radical, involving an explicit break with the Abbott era, anything announced in the Budget will look like “me too”.

Update Immediately after posting this, I found this piece by Laurie Oakes, arbiter of the Australian political zeitgeist, making an almost identical argument.

116 thoughts on “Shorten wins the tax debate

  1. Indeed, and Shorten’s policy was announced with the great tag line of “making home ownership affordable for the young”. A brilliant platform to build from.

  2. @BilB

    “Making home ownership affordable for the young” who have not entered the market yet will require a collapse of the RE market to prices 1/2 to 1/3 of current prices. Plus forgiving student debt plus actually making jobs available for young people including graduates. The economy is such a disjointed mess now it is hard to see these (antithetical) events happening all together.

  3. “Zeitgeist arbiter” is a nice job description, tonier than “political strategist”. It would make a subtitle for JQ’s blog!

  4. John, before you call Bill Shorten a “Machine Politician” (whatever that is) I suggest that you look at some of his performances in parliament. He has during the last year, given two of the best stump speeches I have ever heard. I’ve linked below his speech in support of a censure motion last Thursday, during which he left Captain Waffle bleeding from every orifice. He really starts cooking at the 2 minute mark.
    Wait for the election, when the MSM has to give him more coverage.

  5. If the NBN is anything to go by, the LNP won’t have a bar of what Labor is suggesting, and will come up with a policy that is in almost every way inferior, but will be spun by them and their acolytes as being far far better – until it’s introduced and the general public realise they’ve been suckered, and their policy actually only benefits their core constituency to the detriment of everyone else.

  6. My dark-horse prediction is that the libs will go ahead with the privatisation of Medicare’s back-office services. I know it’s nuts. But Turnbull is a merchant banker which means he loves privatisation and fees, fees, fees; Sco-Mo is an chest-beating idiot. They’ll try to bribe the electorate by using the $40 billion raised to offer tax cuts.
    It will be an electoral disaster, of course. But I suspect they’re not bright enough to see that.

  7. Despite all of this, Shorten has left Malcolm Turnbull and Scott Morrison looking flat-footed.

    I’d say that the key here was the release of the treasury modelling papers. Seems reasonably likely that Turnbull is trying to discredit morrison; there’s a number of possibilities as to why, but I don’t have enough insight into Turnbull’s motivations to guess.

  8. I like the scaling back of negative gearing. I only hope the policy is fully fleshed out though. Limiting negative gearing to new builds would be a bust if one were allowed to bulldoze perfectly good non-qualifying buildings to just to construct new qualifying ones.

  9. David Allen :
    Limiting negative gearing to new builds would be a bust if one were allowed to bulldoze perfectly good non-qualifying buildings to just to construct new qualifying ones.

    I can’t see this being worthwhile, unless the old house was a wreck and the land was of high value. Negative gearing has to be the most egregious way the already comfortably well-off are advantaged over the rest. No wonder Federal MPs have on average around 3 investment properties! House prices are 2 or 3 times what they should be in some locations. The other problem with negative gearing, rarely mentioned, is that the investment is unproductive. Imagine how emerging industries could benefit from negatively-geared investment by the folk currently buying rental housing!

  10. Perhaps Bill Shorten has been reading the Henry Tax review? It certainly looks like it.

    Turnbulls warm fuzzy feel now seems somewhat diminished and he will struggle being tied to that overly ambitious buffoon Barnaby.

  11. A few quotes on taxing, especially taxing the rich.

    “We know something about billionaire consumption, but it is hard to measure some of it. Some billionaires are consuming politicians, others consume reporters, and some consume academics.” – Thomas Piketty.

    “Those who eat their fill speak to the hungry
    Of wonderful times to come.
    Those who lead the country into the abyss
    Call ruling too difficult
    For ordinary men” – Bertolt Brecht.

  12. It seems to me that any discussion about tax reform should be preceded by a debate about what sort of society we want in Australia. What the LNP wants is pretty obvious, it can be summed up by the phrase “Government by the Market” (refer Peter Self : Government by the Market, the Politics of Public Choice).

    It is not clear what Bill Shorten and the Labour Party want for Australia and has simply positioned the Labour Party as not LNP, not Abbott, not Turnbull. Previous Labour Governments have adopted and even promulgated policies of what JQ calls ‘Market Liberalism’ in his book “Zombie Economics” and there has not been a substantial point of difference in practice between the parties, just a question of the degree to which these policies have been implemented.

    I’d like to see the Labour Party step up to the plate and actually articulate what their vision is for Australia and what it would look like in 20 years time. Taxation and redistributive policies are simply the tools to achieve the vision.

  13. I agree with John Turner that there has been little difference between the ALP and Liberals. And Shorten’s negative gearing quest could easily have come from the Liberals under different circumstances.

    So given negative gearing is in the spot light, but I wonder what they are talking about.

    Negative gearing can take two forms, if you make a loss on acquiring a productive asset you can either 1) bank it and take it off future losses, or 2) deduct it off other income from and entirely different source – eg PAYE.

    But all capitalists do this. Capitalists deduct all their costs before determining taxable income. If Coles makes a loss selling petrol it deducts the loss from profits from selling staples.

    Housing negative gearing is only being attacked, not from economic principles, but because of community concern and political pundits trying to grab the limelight by delivering yet another popular placebo.

    So why attack property specifically just because your economy has totally destroyed public provision.

    Again, populist chants against negative gearing are just encourages people to jump up and down pretending they are dealing with housing affordability without exploring the real causes of their dilema.

    Given the long run collapse in workers share of income, and the puffed-up rates of capitalist rates of return, – housing for wage earners will never be affordable on the free market.

  14. Shorten’s achievement here for housing affordability is greater than savings that a cooling market may bring, It includes the avoided automatic 5% increase that an inflated GST would have brought.

    Now all Shorten needs to do is propose some really effective regional investment incentives, and property values will stay stable for a very long time as young people get the opportunity to work in places other than our pressure cooker cities.

  15. Here is a comment from Wikipaedia on homd ownership

    “In June 2011, The CEO of ANZ Bank, one of the big 4 banks in Australia and New Zealand said housing should not be a vehicle for speculative price growth, but simply as shelter.[9] He also criticized the Federal Government’s policy on negative gearing tax breaks which increases the focus on housing as an investment rather than shelter and decrease affordability.[9]”

  16. BilB :
    Here is a comment from Wikipaedia on homd ownership
    “In June 2011, The CEO of ANZ Bank, one of the big 4 banks in Australia and New Zealand said housing should not be a vehicle for speculative price growth, but simply as shelter.[9]

    And the same should apply to clothes, food, furnishings, transport, utensils, book, health and education.

    Maybe the ANZ speaks with a forked-tongue.

  17. Doesn’t seem sensible to me to both deny interest deductibility on a class of asset purchases and to intensify the capital gains tax on them. Do one or the other but not both. No other asset purchase is subject to such measures – the family home for example does not give interest deductibility but capital gains are untaxed. Borrowing to invest in shares allows full deduction of interest costs but capital gains are subject to (discounted) capital gains tax.

    Will this measure be extended to equity and other asset market purchases? Probably a field day for lawyers of course as they put building investments by households into corporate shells.

  18. ….and the rest of the quote

    “He also criticized the Federal Government’s policy on negative gearing tax breaks which increases the focus on housing as an investment rather than shelter and decrease affordability.[9]”

  19. I guess the correlate to the proposed policy in equity markets would be to allow the tax deductibility of subscriptions to newly issued capital and to tax capital gains on this but to deny this deductibility for capital gains made on any transferred shares and to subject any capital gains on them to tax.

  20. @hc

    Nobody is suggesting interest on loans used to finance investment in real estate should not be tax deductible from income earned from such investment. The point of discussion is that losses on real estate investment (rental income less expenses) should not be deductibel from income from other sources.

    Gearing (debt financed) purchases of ‘assets’ puts upward pressure on asset prices. The obvious example is the stock exchange price boom prior to the Lehman event. You may have noticed that almost 9 years after this event, the ASX indices (All Ord and ASX200) is about 1200 below its peak in 2007/08.

    Negative gearing is a small scale example of tax minimisation available to multinationals and other complex corporate structures.

  21. It seems to me, the Australian public is the mover and shaker on the tax debate since Hockey’s May 2014 budget.

  22. Ernestine, Interest deductions apply to your gross income inclusive of ALL types of income. For example, if your interest costs on holding equities exceed the dividends you receive you can still claim a tax deduction provided you earn other income.

    What you call a “tax minimisation” technique (negative gearing) applies to all assets in the economy – firms and individuals.

    Gearing was not a new feature of stock market investment in the events prior to 2008. It has been used since the start of time.

  23. If you can’t afford a house, you don’t benefit from the family home being exempt from capital gains tax. And naturally you don’t benefit from negative gearing on the rental properties you aren’t buying.

  24. Master Builders were on the telly threatening hellfire and damnation over this policy which just proves that like most others they haven’t read the detail. The proposed policy is to exclude negative gearing on new purchases of older homes; negative gearing will be allowed on new home builds.

  25. I’ve heard various figures of additional tax revenue of anywhere between $3 and $30 billion. Leave the CGT concession to one side for a moment as this is a suggested reform too.

    If these measures prevented tax reduction from other income sources wouldn’t these same expenses simply be deducted from the profit margin at sale time and effectively water down the CGT obligation. Seems more like the net tax liability over time doesn’t change much just the date when it is due.

    Pardon me if I’m missing something. It is getting late.

  26. I know it is a bit off subject but there seems to have been very little sensible debate about the proposed privatisation of Medicare Billing and processing of Medicare Claims.

    As someone who manages a large General Medical PracticeI am probably in as good a position to see how the present system works. In my opinion there is no real issue with the billing and rebate side of Medicare in terms of process. With the advent of easy claim, practices and patients are able to receive payment into their accounts immediately, bulk billing claims are efficiently and easily processed.

    Where problems do exist it is in those functions where there are no plans to privatise. Huge amounts are wasted because Medicare insists on dealing with doctors individually despite the fact that activities are frequently based on the Medical Practice rather than the individual doctor. For example a few years back the government/Medicare decided to provide incentives for doctors to offer patients video consultations with specialists. The incentives consisted of a $6000 dollar incentive triggered by the doctor’s first video conference consultation, the incentive was supposed to encourage doctors to provide the necessary IT infrastructure for future video conference consultations. However For a large practice such as ours with 20 doctors it meant that if every doctor made one video conference consultation a total of $120,000 would be received by the practice. The infrastructure required is a couple of laptops and Internet access and some cheap/free software.

    Many practices that I know of took advantage of the situation and with some 43000 GPs around the country if all took advantage of the scheme the cost would have been in excess of $250million.

    Every time Medicare wants to send general information to doctors, it sends it to every individual doctor. Most end up in the bin in our practice because we have a communications board where this info is placed and we also circulate the info electronically. How many trees are sacrificed as a result of this individualised approach – must be thousands.

    Getting doctors registered for Medicare can also be a nightmare, the systems are inefficient and bureaucratic and could easily be streamlined.

    However these are not the areas the government has said are their priority, it seems to me to be a case of where it is working well, privatise it, where its a problem leave it where it is.

  27. @John Turner

    «What the LNP wants is pretty obvious, it can be summed up by the phrase “Government by the Market”»

    Maybe that’s what they want, but they are actually doing, like most parties in anglo-american countries, is “government for the benefit of property owning middle aged and older middle classes”.

    There is nothing market-oriented in the policies designed to push up the growth of property prices and push down the growth of wages, redistributing from labour income to property income.

    The goal is simply to ensure that the middle classes feel and vote like “upstairs” people.

    Another way I put is is that the dream is that of a “plantation economy”, with the “winners”, the “highly productive” middle and upper classes living comfortably or in luxury from property rent and capital gains in the airy, tree lined suburbs, and the “losers”, the “lazy exploitative” working and poor classes, immigrant or native, are pushed to toil endlessly to serve their superiors and live in whatever shacks they can find in decaying estates.

    The “plantation economy” dream is very, very popular with the middle classes. Their motto is the usual “Blow you! I am allright Jack”.

  28. @hc

    “What you call a “tax minimisation” technique (negative gearing) applies to all assets in the economy – firms and individuals. ”

    It is exactly not the case that interest payments on loans paid to acquire assets is tax deductible from wage incomes. Examples: Credit card interest for a loan used to purchase assets like household white goods, gold bars, …; interest on a loan to buy a car; interest on a morgage to buy a house to live in. And where does this leave student debt? Education is often said to be ‘an investment’. Well, if it is an investment, then education is a process of acquiring ‘an asset’. But interest on a student loan is not tax deductible from income.

    A butcher shop (‘the accounting entity’) cannot claim as an expense interest paid on loan for a private car. (Yes, it is common knowledge that family members can be employed and have a car for allegedly business purposes.)

    A dentist cannot claim interest paid on a loan for a fashion shop as an expense against the income as a dentist – unless the dentist is a company, which is a subsidiary of another company which has another subsidiary, namely a fashion shop. This is the simplest example of a ‘complex company structure’ I can think of.

    You may note the notion of ‘cost of production’, as taught in Economics, is very different from ‘the cost’ of productions which are relevant for taxation purposes. This is not due to ‘markets’ but due to the legal structure.

    The case of dentist and fashion shop is easy to disentangle. With multinationals it is not so easy because the production technologies are not common knowledge.

    If people wish to simplify the taxation system and make it more transparent then there is an obvious solution. Disallow all work related deductions for wage earners. This means their wages are revenue (in the sense of sales). Impose a revenue tax (sales in juristiction A) on all companies. This standardises the notion of ‘income’ between wage earners and companies. Then we can talk about ‘income tax reductions’.

    “Gearing was not a new feature of stock market investment in the events prior to 2008. It has been used since the start of time.”

    Well, I assume you don’t mean ‘since the start of time’ literally.

    True, all prices are interrelated. Hence some of the decline in share prices may be due to shifts from equity to debt securities and real estate, domestic and international. However, the effect of debt on equity (shares) prices cannot be ignored. During the period prior to 2007-08 not only bank loans (heavily promoted to just about all home owners) but debt in the form of derivative securities grew rapidly. The relationship between complex debt securities and the real estate crash in the USA and in Spain are surely well documented by now.

    When people talk about ‘deliveraging’, it ought to be taken seriously. There is so much debt in the system that any attempt to reduce it causes severe discontinuities somewhere in the system.

    I believe you have helped to cristilise the fundamental problems regarding ‘fairness’ and ‘financial stability’ in relation to taxation policy.

  29. «government/Medicare decided to provide incentives for doctors to offer patients video consultations with specialists. The incentives consisted of a $6000 dollar incentive triggered by the doctor’s first video conference consultation, the incentive was supposed to encourage doctors to provide the necessary IT infrastructure for future video conference consultations»
    «Many practices that I know of took advantage of the situation and with some 43000 GPs around the country if all took advantage of the scheme the cost would have been in excess of $250million.»

    6,000 dollars flat-rate “expenses” for the IT needed for something like a Skype call? Something that nearly all practices have anyhow already? Obviously it was a thinly disguised excuse for the government to give a present to each doctor. So it was probably quite intentionally a per-doctor present rather than per-practice one.

    If you remember A Bevan in the UK “stuffed their mouths with gold” (overpaying doctors so they would join the NHS) so there may be some of that. Or maybe the government just rewarding one of their constituencies.

  30. Too many people here overcomplicate matters. Seems to me that the message was that Shorten had drawn a line in the sand. It has already drawn stupidity from Morrison.

    Apparently Labor’s measures are beyond the pale so of course they were never on the LNP table. More lies that will not be reported.

    My other point is that I would have gone further and given all CGT concessions the flick. CGT more than NG distorted the market and should be increased.

  31. @dedalus
    My apologies if my incorrect spelling offended you. I am used to spelling ‘Labour’ in the English manner rather than in the bastardised form of the English language practiced here and in the US.

  32. @John Turner

    No, John, we colonials happily labour too, just like the mother country. But the ALP was, in fact, the Australian Labour Party until 1912 when it became the Australian Labor party for reason(s) that utterly escape me.

    However, the ALP as a party and government predates both the British and the NZ Labour Parties, so maybe it’s just a matter of brand differentiation when you poms and those NZedders copied our lead.

  33. @John Turner

    ‘It seems to me that any discussion about tax reform should be preceded by a debate about what sort of society we want in Australia.’

    I’m curious about why it seems that way to you. It doesn’t seem that way to me.

    ‘I’d like to see the Labour [sic] Party step up to the plate and actually articulate what their vision is for Australia and what it would look like in 20 years time.’

    I’m also curious about why you’d like that. It’s not what I would like.

  34. @J-D

    1. So, in your view tax policy is totally unrelated to social policy? If it is not related to social policy what is it related to?

    2. What would you like to see the ALP do? (Since articulating a social plan and vision for the nation is not one of the things you think they should be doing.)

  35. Ivor, you’ve been warned previously. Please take a week off commenting and don’t come back unless you are going to mind your manners – JQ

  36. So, if we think that Shorten’s policy proposal is a good thing, is the fact that he has announced it first a bad thing because it means the government can’t possibly introduce it?

  37. @Robertito
    I doubt they could anyway. There seems to be powerful forces within the LNP coalition suppressing any suggestion of reform to negative gearing and capital gains. I was under the impression Joe Hockey (as Treasurer) was a key component of these forces (as per his rhetoric as Treasurer) yet in his valedictory speech he clearly said (exact quote) “In that framework, negative gearing should be skewed towards new housing so that there is an incentive to add to the housing stock rather than an incentive to speculate on existing property and we should never ever forget small business.”

  38. @J-D

    I’m also curious about why you’d like that. It’s not what I would like.

    I’d be intrigued to know what you would like. Care to share?

  39. An intended consequence of Labor’s proposal is to head off the bubble in house prices. This is creating an unnecessary indebtedness in most consumers, particularly first home buyers and renters.

    Will it work? I think so. Here are my reasons.

    Investors will retreat from established properties because of the removal of the tax incentives. That will lead to a switch in their attention towards newly built properties. However, this will be short lived, as rental yields on new properties are too low to be attractive, since the base line for land + new build in $500k+.

    The nett result, in my opinion, will be a big decline in the number of investors in residential property.

    The flow on in the short term will be a drop in house prices in the lower price range, possibly offset by a slight increase at the top end. Why? Investors liquidating their cheap portfolios will see a glut of these coming on to the market, and the freed-up cash will go, amongst other things, towards upscaling their personal abodes to higher value properties.

    In the medium term, I’d predict house price stabilisation followed by greater affordability as inflation brings house prices back to normative levels.

    That is a very good outcome. Question is, will current house owners be spooked by the prospect of short term asset depreciation? The next election will answer this question.

  40. @dedalus

    My semi-educated guess is that there are several factors feeding in to the house price bubble in Australia. Some have operated for quite a while, some are more recent economic influences. These include;

    (a) over-lending by banks;
    (b) low interest rates;
    (c) first home owners grants;
    (d) negative gearing;
    (e) foreign speculators (like Chinese buyers).

    We need to take the pedal off the metal by removing, at least progressively, some of these influences. A good start would be removing first home owner grants and negative gearing. Unfortunately, there are too many pollies, upper middle class people and rich people making money off these kinds of government welfare. Their hands are in the till. So they won’t change the policies. Instead, we will have to a full-on economic crash to correct prices. One can only hope it is mostly the manipulators and opportunists who get burned.

  41. @Ikonoclast

    1. In my view tax policy is related to social policy, but a debate about what sort of society we want in Australia is not helpful to making social policy.

    2. I would like to see the ALP articulating a plan, but not a vision.

  42. @Ikonoclast

    The one about ” The ancient Romans wrote “labor”. A “U” was added in English perhaps because similar words have a “U” in French.” was a bit sad. It appears that Jim Mackenzie believes that there was an “English” word ‘labor’ derived from the Latin which under French influence became ‘labour’.

    I guess nobody ever told Jim just how much of the mainstream English vocabulary actually is Old French, because of having been conquered and ruled by French speakers.

    Just consider ‘apple’ and ‘fruit’. Amongst many.

    Honi soit qui mal y pense.

  43. @J-D

    Well I don’t think you’ll have to worry about that J-D, the ALP couldn’t articulate a vision even if their retirement fund entirely depended on it.

    Except maybe Penny Wong. She might be able to, given half a chance.

  44. @J-D

    1). I presume that in ‘making social policy’ there is some end goal that the policy is designed to achieve, or is Social Policy made in a vacuum? Surely, Social Policy is directed at achieving specific outcomes and logically these objectives would relate to the ‘sort of society we want in Australia’. If they do not, then please explain the purpose of Social Policy

    2). You subsequently state “I would like to see the Labour Party articulating a plan but not a vision”. It begs the question – a plan to achieve what exactly? If any party cannot tell me what their plan(s) are meant to achieve in terms of the sort of society they want Australia to be then I am not interested in them because any plans they come up with are devoid of meaning

  45. @Blissex

    Be fair, I didn’t say that they wanted a a fair and competitive market. Markets that are distorted or can be manipulated and produce monopoly profits is just fine.

  46. @Ikonoclast
    In the last decade we have been adding to our population at a rate close to 400,000 a year, in the prior decade the rate was about 250,000. I assume this would put pressure on property prices especially given the concentration of the increase in a few cities.

  47. @J-D

    That’s a rather sincere question in response to my smartass comment, J-D, however I’m not sure I actually expressed a desire for a ‘vision’ from a political party. Just the thought that, in the ALP, Penny Wong might be able to formulate one.

    But perhaps I can see your viewpoint: “visions” are waffly, imprecise things, generally full of self glorification and lots of impressive sounding intentions and beliefs. In short, they don’t tell us a thing about what the political party might actually do if it got into power.

    Whereas a ‘plan’ is more detailed and will inform us clearly what the political party will do – if the party actually sticks to it’s plan, of course, and the plan doesn’t tell us that. Any anyway, it’s really only true if the plan is more or less a blueprint – there are ‘plans’ that can be every bit as waffly as a ‘vision’.

    Nonetheless, we can evaluate political parties – eg to decide whether to vote for one – from their ‘plans’ but not from their ‘visions’. Is that what you’re getting at ?

  48. @John Turner

    Yeah, Melbourne’s population – currently a bit under 4.4 million – is supposedly going to increase to 7.7 million by 2051, a mere 35 years (ie about 95,000 per year on average, or about 1825 per week). That should transform Melbourne from “the world’s most livable city” to one of the world’s hell-holes well before we get to 2051.

  49. @John Turner

    My guess is that if we superimposed house prices (adjusted for inflation) over a population growth rate graph for say the last 100 years we would find the correlation would be slight. Other factors, especially those I mentioned are more influential in my opinion.

    If you look at Google Public Data, Australia’s growth rate bobbled around 2% from 1960 to 1974. Then it plunged to 1.23% in 1975 and persisted at about 1.3% until 1990. Then it went lower on average to about 1.2% until 2005. Since 2005 it’s been a bit higher again and jagging up and down quite a bit in individual years but maybe averaging 1.4%. Historically speaking, this population growth is nothing unusual for Australia. In and of itself, this should not qualify as a big push on house prices, again in my opinion.

    Nevertheless, I think we need a population policy and we would need to stabilise at around 45 million, at the most, according to ecological footprint analysis. I would suggest a safer target of 35 million to allow leeway for error and degradation of our footprint capacity (which is already occurring).

  50. @John Brookes

    My son, daughter and their friends (young adults about 22) are generally saying they won’t ever buy a house or apartment until there is a major housing price crash. They see current house prices as ridiculous. This is because they compare those prices to what they can earn as new graduates. They do their sums and can see no point in going so heavily into mortgage debt especially with student debt still hanging over their heads. Many of them are scarcely even interested in owning a car unless their parents give them a second hand one. Most of them continue to live at the parents’ home well into their twenties.

    This goes to an issue I see as a big problem for nations in secular (long-run) stagnation like Australia, USA, UK and so on. Household formation by people in their twenties is plummeting. They simply cannot afford to form households. From a selfish point of view this bothers me. I want my twenty-somethings to move out. From a developmental point of view it is also better for the twenty-somethings themselves to move out. Finally, from a social point of view, society itself will begin to have problems if twenty-somethings are not forming households and families. But all I ever see in the financial press are worries these forces will drive down house prices. They care nothing for the social effects.

    Actually, I think a housing price crash would be economically and socially beneficial in the long run. House prices need to drop to a third of current levels which would be closer to the historically sustainable level. Many who got burned by such a drop would be over-invested and/or over-geared in housing. Most of these would be speculators, as 60 per cent of investment housing debt is held by the top fifth of income earners.

    “HILDA data – used extensively by the Reserve Bank – is a much more reliable measure than the Tax Office data on what type of household gets by far the biggest benefit from negative gearing, and it ain’t the poor.” – Michael Janda, online business reporter with the ABC.

  51. @John Turner

    It’s important to distinguish between what I would describe as ‘thinking in terms of a destination’ and what I would describe as ‘thinking in terms of a direction’; the second is crucial but the first is a mistake. However I recognise that the terms I use may not make clear the distinction I have in mind. I offer just a few illustrative examples in the hope that they will make the distinction clearer.

    Compare/contrast the items on the first of the two lists that follow with the items on the second of the two lists that follow.

    A1 ‘They want to make our country into where everybody is equal.’
    A2 ‘They want to make our country into a genuine democracy.’
    A3 ‘They want to make our country one where diversity is fully accepted.’
    A4 ‘They want to make our country one where everybody is secure.’
    A5 ‘They want to make our country one that everybody is proud of.’
    A6 ‘They want to make our country into one that is free of violence.’

    B1 ‘They want to reduce inequality in our country.’
    B2 ‘They want to make our country more democratic.’
    B3 ‘They want to increase acceptance of diversity in our country.’
    B4 ‘They want to make people in our country more secure.’
    B5 ‘They want to increase the sense of national pride in our country.’
    B6 ‘They want to make our country less violent.’

    The items on the first list are all examples of what I mean when I refer to ‘thinking in terms of a destination’. The items on the second list are all examples of what I mean when I refer to ‘thinking in terms of a direction’.

    Obviously there are different directions we could go in (as well as different destinations we could think of): if some people want to reduce inequality, some people might want to increase it; if some people want to increase acceptance of diversity, some people might want to reduce it. A discussion about which direction we want to move in might be useful; a discussion about which destination we want to select won’t be.

  52. @J-D

    This only further convinces me that your intellectual method is one of scholasticism. This need not be interpreted as an intellectual attack on you. For example, if you are fully conscious of using this method and if to you it forms a coherent intellectual method then you would take being called a “scholastic” in this sense as a compliment.

    I am genuinely curious. What is your intellectual training? For example, one of my guesses is that you trained at a Catholic University and your education might have heavily featured figures like Anselm of Canterbury, Peter Abelard, Alexander of Hales, Albertus Magnus, Duns Scotus, William of Ockham, Bonaventure and Thomas Aquinas, or even Francisco Suárez and Luis de Molina. It is also possible your training is in Law or Business Management. I would be interested to know.

    In the interests of full disclosure, my training is in the modern Sciences and Humanities and would be broadly called Scientific Humanist. But I also have some Protestant-based theological knowledge: more than the average Protestant believer and less than the average Protestant Theology graduate. Thinkers I would name as important to forming my world view would include Bacon, Newton, Berkeley (as a counterpoint), Hume, Darwin, Marx, Tolstoy (as a moralist and Christian Anarchist), Einstein and A.N. Whitehead.

  53. @Ikonoclast

    What, no mention of Bertrand Russell, though you include his Principia mate, Whitehead ? Did you never read Bertie’s History of Western Philosophy ? Shame.

    A truly impressive pair of lists, Ikono, both for you and for J-D (and I’ll have to go and look up Suarez and de Molina). But really, Ikono, it’s just two lists of opinionated opinionists. So, by way of contrast, let me introduce you to the two thinkers I would name as important in forming my worldview: me and Robert Thouless (author of ‘Straight and Crooked Thinking’, revised 1953 to save you looking him up. Which I bought for 3/- back in 1959).

  54. @Ikonoclast

    My background makes no difference. I have stated my view. If you are unable to evaluate it properly without knowing my background, then you’ll also be unable to evaluate it properly even if I do tell you about my background. If I’m mistaken, my background won’t change that; if I’m not mistaken, my background won’t change that. My opinion’s merits (or lack of them) are unaffected by my biography. If you want to disagree with me, please go ahead; if you don’t, that’s also fine by me.

  55. @GrueBleen
    Do you really think Newton and Darwin and Einstein were ‘opinionated opinionists’? Perhaps it’s not surprising that your worldview was shaped by you and Thouless.
    With Freud (right or wrong), those three created the Western post-Christian understanding of our place in nature, the basis for discussion of whatever society we have, never mind what we might want.

  56. @OM

    Outside of some limited subject area expertise – and don’t forget Newton got a lot wrong, and Darwin was just a beginner who didn’t even understand genetics and Einstein was a misogynist – yes, they were all just opinionated opinionists. Unless you want to install them in some kind of pantheon of lesser gods, or such.

    As for Freud, if you think he had any real influence, well, that’s entirely your issue. Skinner, for one, had a lot more influence.

    But as for them being “the basis for discussion of our place in nature”, well again that’s your opinionated opinion which you came to how exactly ? Did any thinking of your own enter the discussion ? Did you reject Marx and Smith and Hilbert and Goedel – amongst many, many others – out of ignorance or because your own thinking concluded that they should be ignored ?

    And as to “the basis for discussion of whatever society we have”, where does Newton – or indeed any of them – enter into that ? Newton, I might remind you, was just a religious nutcase who couldn’t even formulate the calculus as well as Leibniz. So I ask again, just what part do you fondly imagine Newton played in “the basis for discussion of whatever society we have” ?

    I reckon, if you think about it for a little while, you might have to admit that your own worldview was shaped by your personal misconceptions. Just like mine.

  57. @J-D

    The divide you put between destinations and directions makes no logical sense. Directions come from a desire to head for a destination. In a pure physical navigation sense, we decide destination and then decide direction. In that sense, one cannot choose a direction without having a destination. With respect to qualitative, social or moral goals, the situation really is the same. We first decide ideals as goals whether these are realistic or unrealistic final goals. We then sift goals further to delineate between completely unrealistic goals and goals which may be approached but never reached perfectly. We then decide the direction(s) to take to get nearer to fully realisable goals and partly realisable goals. Thus it always logical to debate and/or analyse goals (destinations) before commencing in “directions”.

    The setup in your B list presupposes the destinations or goals anyway. You cannot logically remove qualitative “goal concepts” by playing such semantic games. “To reduce inequality” still presupposes measures for equality and methods and values behind those measures, otherwise you could neither conceptualise nor measure inequality reduction. The debates about the moral and economic values of equality still have to had first along with debates about how to measure equality/inequality. Your distinction between the A and B list is on any logical analysis, spurious.

    I wonder in turn why you feel the need to be uncommunicative about your intellectual underpinnings. I am quite intrigued to understand the deeper basis of your thinking. The basis seems entirely semantic to me with reference to neither logic nor empiricism. If you disagree, you are entirely free to divulge the real method of your thinking.

  58. @Ikonoclast

    Oh pish tush, Ikono, J-D is just saying that ’tis better to travel hopefully than to arrive because we always pick the wrong places to go to.

    Nonetheless, if you think about it, there is a very quantitative and qualitative difference between “everybody is equal” and “reduce inequality”. The one would require god-like powers because to make everybody equal would require that everybody is made totally identical. Whereas to reduce inequality merely requires that we know exactly what “inequality” means and that we have an infallible measure that allows us to determine just who is unequal and by how much.

    A doddle, you see.

  59. Ikonoclast, J-D’s division is a division between execution and political spin.

    Who can forget the classic Howard “we are going to inject 500 million dollars,……over 10 years” into what ever politically damaging nightmare he was facing. This inevitably meant nothing would be spent for 9 years and probably nothing in the tenth as circumstances would have changed, by that time. The Liberals (Liberal with the truth) call this “responsible economic management” and the primary means by which huge surpluses are accumulated to give as reduced tax handouts to the top tax bracket.

    One of those I remember was during the drought. Money was made available to country township businesses to help carry them through worst period when farmers had no cash flow. I don’t know what the conditions were but it was reported that they were so onerous that virtually no-one took up the offer. But, the political points were scored, “Howard saves country townships”,…not.

    As someone once said “the road to hell is paved with good intentions”. J-D’s B list is such a road.

  60. @GrueBleen

    The book you mention by Robert Thouless looks really interesting. I will try to get hold of it. It is like a succinct anthology of logical fallacies from what I see on Wikipedia. That could be very useful. I wonder if it mentions two fallacies which commonly occur in neocon or neoclassical economic propaganda? These are;

    (1) The fallacy of composition; and
    (2) The fallacy of reification (false concreteness).

    However, a guide to logical fallacies is not a guide to logic. The bigger part of logic will deal with valid logical procedures. In turn, understanding deductive logic is not sufficient for attempting to understand the world. We need to look at induction (how does that work or how can it work and what are its limits?) and we need to look at empiricism and pragmatism as procedures, practices or methods: information from the world external to minds, brains and formal systems and indeed information from minds, brains and formal systems too and also the practical useable information from all those sources (pragmatics). So, I know I am being a pedant but you will need more than Thouless’s book to be able to think usefully and critically and I know you can’t work all the rest out by yourself as that would take more experience and experiments than one person could ever amass. 😉

  61. @GrueBleen
    When people refer to ‘Principia” it is usually Newton’s work to which they refer so you had me confused there for a moment. Whitehead and Russell’s work ‘Principia Mathematica’ I have not read but I have read his History of Western Philosophy which sits on my bookshelf yet; I even had the good fortune to hear the great man speak as the president of the CND and also later John Collins in 1963 during the Aldermaston March (I was a mere 16 years of age).

  62. @John Turner

    Unfortunately I didn’t ever get to see Russell live, the closest I came was a tv interview with him when he was, I think, 93. Still very sharp and clear. And like you, I never did get around to reading Russell and Whitehead’s Principia, and also like you, Russell’s History of Western Philosophy sits, mostly read, on my bookshelf.

    But I did get to attend a lecture given at Melbourne Uni by Robert Thouless who was blind (I was in High School at the time) in which he, amongst other things, advocated that suicide should not be a crime (which it was at the time).

  63. @Ikonoclast

    Thouless wasn’t writing as an expert logician, so he didn’t go through all the formal errors, though he did cover some. But not ‘composition’ and not ‘reification’ specifically, at least to my recall (and my PAN books copy doesn’t have an index, so I can’t check quickly). No, I had to go later to other sources for those.- L Susan Stebbing’s ‘A Modern Elementary Logic’, I think, was my first port of call. Copi came a little while later.

    And he certainly didn’t cover my personal favourite bugaboo: the greatest problem is to stop thinking too soon, and most everybody always stops way too soon. However, both ‘composition’ and ‘reification’ are amongst my many favourite bugaboos, too.

    But he was very good on the ways people confuse themselves and others with faulty reasoning – both inadvertently and deliberately – particularly in conversation and debate. On that, he was really good, and to a mid teenager like me when I first read him, a total eye (and mind) opener.

    As to induction, well, I remember the old ‘proof’ that all swans are white:
    1. All swans are white is logically equivalent to “all not white things are not swans”.
    2. Here is a pair of brown shoes which are not-white things which are not-swans.
    3. Therefore (pointing to a very large number of not-white not-swan things), all swans are white is corroborated.

    And as to “valid logical procedures”, you might be surprised how little, outside formal mathematics and the occasional scientific paper, anyway, such things are ever actually used. Read any publication any time and tell me how many times you actually encounter any “logical procedures” at all. Or even a passing nod to the idea that they should provide arguments cast in formal logic – boring, nobody would ever read such things.

    But otherwise, my point isn’t that I didn’t need or use any other sources of ideas and information, it’s just that ultimately I have to do my own thinking. A conclusion I’m sure you are supportive of.

    However, we all run into a very simple problem: we have neither lifetime enough nor certifiable knowledge enough to seriously tackle many issues or problems in a formally valid way. So we all have to just ‘accept’ the testimony of others into our belief set. A real shame, that, but such is life.

  64. @Ikonoclast

    For one example, it is possible to recognise inequalities (of various kinds) and to set out to reduce it without formulating any concept of what complete equality would be like. For another example, it is possible to recognise insecurities (of various kinds) and to set out to make people more secure without formulating any concept of what complete security would be like.

    For yet another example, of a more specific kind, it is possible to oppose slavery and to set out to abolish it without having answers to questions like ‘What will the slaves do when they’re freed?’ or ‘What will we have instead of slavery?’ or ‘What will a society without slavery be like?’

    If you think these statements (or any of them) are incorrect, you are free to attempt to show how — that’s up to you.

    Or, if you think that it’s a good idea (even if not strictly necessary) to attempt to define what complete equality would be like before setting out to reduce inequality; or to attempt to define what complete security would be like before setting out to improve security; then you are free to explain why you think so.

  65. “So we all have to just ‘accept’ the testimony of others into our belief set. ”

    What process do you or does one go through to decide which testimony to accept and…. don’t you think that one can tentatively accept parts of another’s testimony and also be dubious or sceptical about other parts and sometimes even if that testimony aligns with our own, it could be that the testifier arrived at their conclusion based on different rules – different from those that I would use – that guide their acceptance of the testimonies that they accepted as true or true enough and was incorporated into and or informed their testimony?

  66. It occurs to me that it is the process of working out ones values that reveals the value of ones testimony, is I think what I meant to suggest. 🙂

    I like Spinoza and find his thought process worth bothering with because he lived his philosophy; he was not a hypocrite.

  67. My process is to put all new information on probation until it can be validated as being compatible with my general understanding, supercedes my current information, or is just garbage to be discarded. I think most people operate the same way to a greater or lesser degree, but if their knowledge base is very limited then they can be accepting garbage as superceding their previous knowledge which is worse garbage.

    The anti science and denialist groups (and the finance thieves) have a vested interest in packaging garbage information as genuine “new” information in order to protect particular groups who stand to lose from an improved global knowledge base. In the tax “debate” Abbott and his minion Morrison sort to advance the interests of the upper income by painting an increased GST as being a logical and inevitable advancement of a “fair” tax system.

    Thorless had plenty of ways for seeing through the LNP confusion machine

    No. 3. proof by example, biased sample, cherry picking
    No. 6. ignoratio elenchi: “red herring”
    No. 9. false compromise/middle ground
    No. 12. argument in a circle
    No. 13. begging the question
    No. 17. equivocation
    No. 18. false dilemma: black and white thinking
    No. 19. continuum fallacy (fallacy of the beard)
    No. 21. ad nauseam: “argumentum ad nauseam” or “argument from repetition” or “argumentum ad infinitum”
    No. 25. style over substance fallacy
    No. 28. appeal to authority
    No. 31. thought-terminating cliché
    No. 36. special pleading
    No. 37. appeal to consequences
    No. 38. appeal to motive

    (from Wiki on Straight and Crooked thinking)

  68. @Ikonoclast
    While the percentages are not significantly different the actual increase in numbers is significant because of the compounding effect. From what I could deduce, the annual increase in building approvals has not kept pace which is I suggest is a contributing factor underpinning a steady growth in prices but, I agree, not the cause of the price bubble.

  69. @BilB
    There’s a lot of new knowledge available these days about the ‘rules’ that under pin human cognition and the biases that we all have. Understanding one’s own Unconscious motivations seems to be the difference between philosophy that is useful and philosophy that is just idiosyncratic individualistic wanking.

  70. @BilB

    I wish I had the time, and the memory capacity, to put new testimony ‘on hold’ awaiting validation. But I don’t, so most of it just slips in – but only, thankfully, to middle-term memory and is forgotten fairly quickly.

    However, Thouless was a psychologist (who, incidentally believed in ‘psi’ aka extra-sensory perception) and his main interest was in human behavior rather than the philosopher/logician’s interest in formal logic. So, as per the list you quote, there’s a lot of emphasis on how we screw up our thinking and how we try to screw up the thinking of others.

  71. Julie T,

    I will share this here as you seem to listening and thinking.

    It has become evident to me that the principle driver of human interaction perception is not cognitions, but empathies. Cognitions are about what we hear or perceive, empathies are about whether we are listening or receptive.

    We are all built with a particular empathy performance band level which fits into a bell curve distribution which ranges from the hyper empathetic (dangerous to oneself dysfunctional) to the zero empathetic psychopathic (dangerous to everyone else dysfunctional).

    In order to understand the political mess in the US all you need do is determine where each of the commanding players fits into the empathy bell curve. The bleeding heart liberals are on the left and the Libertarians and brutal dictators are on the right. The rest of the population fills the space in between. The further apart the players are, the greater the probability of total failure.

    Now apply that to the family structure and you will see that the maternal is to the left and the paternal is to the right. In a functioning family the empathy spectral bands overlap by a huge amount. When a family is disintegrating the empathy spectral bands narrow to where the overlap is insufficient to maintain the union.

    Now take that thinking to the US political environment and you will see that the party’s empathy spectral bands (policies too) have narrowed to the point separation. And that is what we see in the nomination for a new judge.

    US political parties want a divorce.

    Next step is to understand the implication to economics.

  72. @Julie Thomas

    I think, Julie, that it very much depends on the quantity and quality of ‘testimony’ as to how one ‘decides’ what to accept or reject or modify. For starters, a lot of testimony is never ‘decided’ as such, it just slips in without conscious involvement – for instance, the grammar and vocabulary of your native language(s) – are you conscious of having learned any of that, at least until you got through a fair bit of schooling ?

    You may not consider that as ‘testimony’, but to me it is, as indeed is virtually all of the social behaviours that we learn.

    But in general, I try to be a bit like BilB and hold at least the serious stuff in ‘belief limbo’ until I’ve had time to actually think about it.

    However, if, for example, I hear of a road accident causing death on the radio in the morning, I’m mostly likely to accept that without further ado. On the other hand, the testimony from scientists about having detected gravitational waves takes a bit more. But I did read a few apparently informed posts, and compared their experiment to the Michelson-Morley effort to find out whether there was an ‘aether’, and it made sense. So, noting that this is still ‘provisional’, I now accept “gravitational waves have been shown to exist” into my belief set.

    But when we come to so-called ‘philosophy’, or as I generally call it, opinionated opinionism, then I try (not always completely successfully) to be very skeptical indeed. And that is where, as I said to Ikonoclast, I really have to do my own thinking, if I can, when I can and as best I can.

    And yes, that is where one’s self-knowledge and self-understanding is important. Unfortunately, I have no way of documenting the complete set of all my beliefs, so I can never be sure I’ve really evaluated opinionist testimony – especially when we humans are afflicted by, as the psychologists try to explain, ‘theory (belief) perseverance’ (qv along with cognitive dissonance).

  73. @BilB

    No doubt that the human mind/brain responds emotionally then rationalises after; many thinkers have recognised that and now neuro-science gives us pictures of how it goes.

    When you say we are all “built” I need to know what you mean by this word before I can judge or determine the truth value of that statement or testimony.

    Have you read any of Johnathon Haidt’s characterisation of Liberals, Conservatives and Libertarians? He had some interesting things to say in his book “The Righteous Mind” about the way we western people are divided but he’s got nothing more to say that makes any sense to me.

    It works better for me to understand the relationships between a couple as not maternal and paternal because there are many dyad relationships that are within the normal range of human ‘sociability’ (and by socialiality I don’t mean being able to do small talk at parties) have been essential for our survival as a species.

    The ‘breeding pair’ as the foundation of human reproduction and societies does not seem rational to me; human societies have always included dyads and non-breeding pairs who contributed to the success of the society and the economy, so it is more rational to think of the dichotomies we like to create in neutral not loaded terms.

    Sometimes I think it is useful to explain that a natural male and female relationships could be likened to the way our left and right hands work together without one thinking the other is the best or the strongest.

    The yin and yang concept from the eastern philosophies though is particularly resonant with whatever it is that I do to discern how reliable or true a statement is; the contrast and comparison of another cultures way of rationalising experiences, and accepting that the ‘weird’ assumptions other humans develop about what is natural are an intelligent response to their environment, was the most useful exercise I managed and that was in my Philosophy of Science class when doing Hons with a wonderful anthropologist lecturer.

  74. Julie, in my experience empathy capacity is not a conscious choice. You can choose to how to direct your empathy, but if you have a low empathy capacity you will not be able to direct it. Empathy is largely emotionally driven and can be enhanced or retarded according to ones age, situation and experiences, I believe.

    I make the maternal and paternal, as distinct from male and female, connection to politics as they are very much both aspects of governance of a population. The left is largely dominated by social drives, the right is more dominated by concerns for creation and preservation of wealth (originally food, shelter and safety).

    With a taste for anthropology you might find the work of Robert Sapolsky fascinating.

    the the most important revelations begin 46 minutes in but you have to watch the whole doco to appreciate the importance. Think of the Alha’s as your typical libertarians.

  75. @John Turner

    Ikonoclast is completely right about the relative insignificance of population growth. Large increases in housing prices have been a characteristic of almost all developed countries; countries which do not share Australia’s “third-world style population growth rate” (to borrow an expression from Bob Carr’s recent piece of spectacularly ill-informed clap trap) have had very similar increases in prices.

    Aggregate, non-spatial analysis of housing that simply assumes an upward sloping supply curve is, quite frankly, lazy, trash analysis. The frequency with which it is trotted out by supposedly reputable people does not change this fact. That said, there is reason to expect population growth to have some effect on house prices. As growth continues to occur in the major cities, the advantages that they have over stagnant regions—including their ability to offer higher nominal wages and better consumption amenities—will also increase, and these extra advantages will be reflected in higher house prices. But the idea that this is necessarily a bad thing is very wrong.

  76. @GrueBleen

    Nobody makes anybody live in Melbourne. Because people can leave Melbourne or choose not to move there in the first instance, Melbourne can only become a hell-hole if everywhere else in the country becomes a hell-hole, which seems rather unlikely. If Melbourne at a population of 7.7 million represented a hell-hole, it would never reach that population. However, given the production and consumption advantages of big cities such as Melbourne—and the fact that these advantages increase as cities grow—it is highly unlikely that Melbourne will stop growing, even if growth is poorly managed.

  77. @Luke Elford

    In which city can one pay for a house with the currency unit ‘production and consumption advantages’ (also referred to as ‘consumption amenities’)?

  78. @Luke Elford

    “…it is highly unlikely that Melbourne will stop growing, even if growth is poorly managed.”

    Yep, and therefore, like I said, it will become a hell-hole even before it gets to 7.7 million. But thank you for your ingenuous thoughts.

  79. > Nobody makes anybody live in Melbourne.

    If your intellectual framework only distinguishes between “compelled at gunpoint” and “utterly free consequence-free choice”, then it’s going to be pretty obvious — at least to us — that your conclusions are going to be, you know, completely worthless.

    Because they won’t be rooted in the real world, but in your fantastic imaginings. The thing is, your ideas are self-consistent, and “self-consistent” means that no amount of thinking about it will reveal discrepancy, because the discrepancy isn’t between different parts of your thinking but between parts of your thinking and reality. Reality checking needs to be done against the actual reality, not your understanding of it… but you can’t break out of your understanding by yourself.

    You cannot introspect yourself into correctness. Not reliably, which means not usefully. You need to talk to people and check your ideas against not only your understanding of reality but the understandings of others, to guard against misunderstandings of How Things Work.

  80. @GrueBleen
    We need to get to the Hong Kong level of density where everyone lives in a shoebox apartment that costs $10M and are literally pushed into train doors by people pushers (yes that’s their actual job) so all passengers are squeezed in like sardines during peak times.

  81. @Ernestine Gross

    I’m pretty sure you’re trolling, but since your question may simply reflect the fact that you completely lack any understanding of some very basic ideas in urban economics, I’m going to reply in good faith.

    By production advantages, I mean higher productivity [1] and hence higher nominal wages. People will be willing to put up with higher housing prices in one location compared with other locations if they earn higher nominal wages in that location because a higher nominal wage means that they will be able to achieve the same utility as elsewhere, despite the higher housing prices. They may not be able to consume the same bundle of housing and other goods as they would elsewhere, but they may be happy to make some substitution between these.

    By consumption amenities, I mean any characteristic that makes people willing to accept a lower real wage to live in one location compared with other locations. People will be willing to put up with higher housing prices in a high-amenity location, even if housing prices are lower in a lower-amenity location, because the contribution that the local amenities make to their utility offsets the effect that higher housing prices have of reducing the bundle of housing and other goods they can consume—obviously, they will either have to consume less housing or less of other goods, or some combination of the two.

    How this plays out in terms of housing consumption depends, obviously, on the nature of housing demand—in particular, the price and income elasticities. But generally speaking, households in larger cities spend more of their income—certainly in absolute terms and sometimes in percentage terms—on housing, but not enough to consume as much housing as similar households in smaller cities, and this is reflected in the makeup of the housing stock (e.g. smaller average numbers of bedrooms).

    [1] Firms and workers in larger cities are (on average) at the very least privately more productive than those in smaller cities. Professor Quiggin has some iconoclastic ideas about the social benefits of (at least some) agglomeration economies, but they are immaterial to the discussion above.

  82. @Collin Street

    I note that you don’t actually explain why you think the idea I presented—that living standards (of individuals with given characteristics) experienced in different parts of the country cannot diverge too much when people can move between these areas—is wrong. And, since you’ve almost definitely never read the literature on this subject, how on earth do you know to what extent the idea has been tested against reality?

    There are certainly limits to the idea of living standards being equalised through migration, but they don’t extend to people living in a hell-hole Melbourne in a generally non-hell-hole country. Migration can be costly, but that’s more an issue of people failing to leave declining areas, not for a location subject to immigration and fast population growth. People aren’t fully informed about the opportunities they have in different parts of the country, but the information requirements for distinguishing between hell-holes and non-hell-holes are very low. People form attachments to places—and they develop social networks they may be reluctant to leave—but again this is more of an issue for people failing to leave declining areas. At any rate, it hasn’t prevented migration from and population decline in many parts of the country.

  83. I have never lived in Melbourne, or anywhere else in Victoria, so I have no experience of how attractive they are as places to live or how close they come to being hellholes.

    However, if Melbourne is more attractive (or less unattractive) as a place to live than is The Rest Of Victoria (TROV), it’s to be expected that there will be a nett movement of people from TROV to Melbourne. That only depends on relative attractiveness, though, not absolute attractiveness. It could easily be the case that the flow of people from TROV to Melbourne makes _both_ less attractive places to live. That would be bad for everybody in Victoria and yet would still be likely to continue. Both Melbourne and TROV could become less and less attractive as places to live while Melbourne still remains more attractive (or less unattractive) than TROV, maintaining the population flow which makes everybody worse and worse off.

    As I say, I have no idea whether this is actually the case. However, if something like that is going on, the policy response indicated (to my way of thinking) is to look for ways to make TROV a more attractive place to live. That would obviously be a good thing for the people of TROV in any case, but if population flow from TROV to Melbourne is making Melbourne a less attractive place to live, then it’s also a good thing for the people of Melbourne, and everybody can be a winner.

    It’s easily possible for individuals making rational decisions for the best (their individual best) to produce a joint outcome that’s worse for everybody. That’s how traffic jams happen, for example. If there’s any hope for improvement in such situations, it lies in changing the incentive structure or, to say the same thing in different words, giving people better options.

    The same analysis applies to Hong Kong (a place I’ve never even visited). Probably all those people moving into Hong Kong are making it a less attractive place to live, but they’re all coming from somewhere else, which must be (to them) even worse (despite what’s happening to Hong Kong); if something could be done to make that somewhere else a more attractive (or less unattractive) place to live, the flow of people to Hong Kong could be expected to slow, and again everybody could be a winner.

  84. @Luke Elford

    Ernestine Gross can reply for herself of course and she may do so. I think she might have been referring to the concept of the ‘minimum wealth condition’, and other issues, and their impact on the whole question. Consumption amenities can only be purchased by those with enough wealth to do so. This goes to the issue of how people get hold of the currency unit (the Australian dollar in our case). In turn, this point goes to income issues, wealth distribution issues, class issues, market failure issues, financial market issues and even foreign exchange and foreign investment issues. The set of people with the currency units to push up the price of houses in Melbourne is not the same as the set of people who benefit from the consumption amenities of living in Melbourne (considering in particular that we have a global financial system). Then again I might be completely wrong. E.G. may also (or instead) have been referring to other issues which I have completely failed to infer.

    The formulation “In which city can one pay for a house with the currency unit ‘production and consumption advantages’ (also referred to as ‘consumption amenities’)?” does fit the rather abbreviated, wry and cryptic communication style E.G. favours at times. Don’t make the mistake I have made in the past and that is to think that E.G.’s statements are not coming from a carefully formulated and extensive theoretic position.

  85. @J-D
    Yup, many people like the density, the congestion and the city life however many are also there (in large cities) because of the employment opportunities and would love to move out to somewhere quieter but can’t.

  86. TP, “many” people need to try a city of 400,000. All the benefits of the ultra big city, without road congestion and long commutes.

  87. @Troy Prideaux

    I really like the way that, even in Melbourne’s CBD, you can get a ‘car park’ apartment; that is, an apartment that is about as big as a car parking spot – about 3 x 4 meters – which nonetheless contains a bed, a ‘bathroom’ facility and a kitchenette. And a ‘table’ and chair. Which costs about $400 per week to lease because it is in the city and close to everything.

    Just the thing for the Chinese student, or unmarried merchant banker.

  88. @J-D

    Well, J-D, governments have been trying to make TROV more attractive for the best part of 100 years and so far haven’t succeeded.

    A recent government did make Geelong a lot more attractive to a bunch of State public servants by the simple formula of moving their department there. So, if they wanted to keep their job, they moved to Geelong.

    But it isn’t just the movement from TROV to Melbourne – which happens as the attraction of the farming life wanes markedly, but is quite minor – it’s also that Melbourne is the place that most of the immigrants who settle in Victoria come to … and stay there since they don’t have their jobs moved to Geelong. That is why the rate of population growth of Melbourne is high – around 1700 new Melbournians each and every week, I think, for a total of about 99,000 new Victorians in the year ending June 2015 (out of a total of around 371,000 for all of Australia).

  89. The implosion continues with Turnbull et al preaching armageddon over negative gearing while business and others lament his lack of policy

    AFR “This week spelled the final burial of the Coalition’s Turnbull Spring, when all things had seemed possible…without the big policy picture that a party in power should be able to project, the Coalition has reduced itself to series of isolated, individual policy fights which will produce only limited results – and on which it risks being politically bettered.”

  90. @Ikonoclast

    I’m sorry, but I’m none the wiser about how any of this relates to my original comments.

    On people’s ability to pay for amenities such as those provided by big cities, including Melbourne, I’ll note the following. Many, many poor people live in big cities in Australia and other countries, in the most part, I think, because big city economies simply could not function without low-skilled workers. Many, for example, provide personal services that cannot be produced elsewhere and imported.

    I think poor people are likely to value, and pay for, many big city amenities. They won’t be willing or able to pay as much as rich people, but they don’t need to because there isn’t a single market price for them. The price they pay—how much of a hit to their real wages they take by living in a big city rather than another location—depends in part on how nominal wages vary in different locations, and the spatial variation in wages for low-skilled workers doesn’t have to be the same as it is for high-skilled workers.

    For example, if low-skilled workers do not value big-city amenities at all, the wage premium they earn in big cities will have to fully offset the higher costs of living in order to attract them away from other locations. If high-skilled workers do value big-city amenities, their wage premiums in big cities won’t have to fully offset the higher costs of living. Additionally, of course, low-skilled workers may end up living in the less desirable parts of cities, where living costs are lower than the city average.

  91. @J-D

    People’s locational decisions certainly do have a range of impacts, some of which involve market failures. The example you give, traffic congestion, is an obvious negative externality associated with population growth. There are also positive externalities—for example, thicker labour markets (those with more workers and firms) do a better job of matching firms and workers, thereby reducing unemployment and boosting productivity and wages.

    These positive and negative externalities will be felt wherever growth occurs. Their existence means that market outcomes are unlikely to be optimal, but it doesn’t provide any guidance as to what an optimal outcome might look like; there’s no basis, for example, for concluding that too many people move to Melbourne, and it’s equally plausible that too few do.

    Other impacts aren’t market failures even though they are frequently used in arguments for government intervention. For example, higher housing prices play a far, far more important role in increasing living costs in big cities than traffic congestion. But the bidding up of land prices, and the consequent increases in housing prices, aren’t themselves market failures. Arguments that governments should encourage people to move away from big cities in order to reduce housing prices there (which, sadly, are sometimes made by prominent economists who should know better) have no economic basis.

    The general view of people who are experts in this stuff (such as Paul Krugman, who won his Nobel in part for his work on spatial economics) is that we don’t know enough to usefully intervene. At any rate, I doubt that we have the political capacity in Australia for sensible policy-making in this area (and the derp offered by some in this comment thread certainly hasn’t made me more optimistic). There was a time, when Ken Henry gave an excellent speech on the topic, when a fruitful national debate seemed possible. But good policy was never going to happen under Abbott, and, sadly, things have remained the same under Turnball. Policy in this area (for example, northern development) is still the preserve of mining and farming interests and NIMBYism.

  92. @GrueBleen

    No, I don’t usually answer for Ernestine and if I did make such attempts I would be wrong a great deal of the time. In fact, this is about the first time I have ever attempted to answer for E.G. and I made it clear that my answer was very provisional for that reason. By luck or good memory I happened to hit on an approximately correct answer this time.

    At times I debate with Ernestine (which is not answering for her) and it’s pretty much like when I debate with J.Q. I either end up in furious agreement or furious disagreement with said parties. When I disagree, I am often disagreeable and annoying. I’m trying to work on that; to debate views without being snarky. I have a long way to go.

  93. Luke Elford,

    I found a very interesting short paper at;

    It goes right to the issue of urban scales: title – “Scaling: The surprising mathematics of life and civilization.” A key paragraph which sums up their discoveries is this:

    “Infrastructural measures, such as numbers of gas stations and lengths of roads and electrical cables, all scale sublinearly with city population size, manifesting economies of scale with a common exponent around 0.85 (rather than the 0.75 observed in biology). More significantly, however, was the emergence of a new phenomenon not observed in biology, namely, superlinear scaling: socioeconomic quantities involving human interaction, such as wages, patents, AIDS cases, and violent crime all scale with a common exponent around 1.15. Thus, on a per capita basis, human interaction metrics (which encompass innovation and wealth creation) systematically increase with city size while, to the same degree, infrastructural metrics manifest increasing savings. Put slightly differently: with every doubling of city size, whether from 20,000 to 40,000 people or 2M to 4M people, socioeconomic quantities – the good, the bad, and the ugly – increase by approximately 15% per person with a concomitant 15% savings on all city infrastructure-related costs.”

    This is a very interesting empirical outcome. I understand from what they say about their research it is an empirical outcome. This sort of work might mean we do now know enough to usefully intervene. However, a caveat or two (or more) would come with that. If we researched people’s preferences well we might get an idea of how they rank as concerns all the socioeconomic quantities (both good and bad) which fit the 1.15 exponent rule and how they rank the benefits which come with the 0.85 exponent rule. The “items” would have to be listed in the surveys in a “methodologically neutral order”, if such is possible, with no reference to the actual exponent rules of course. We might find (I am just guessing here) different identifiable population segments who would “go” for different things. So there might be ways to plan somewhat “qualitatively different” cities such that another regional city in Victoria (possibly Geelong) could grow to that sort of minimal magic number for a city (the 400,000 mentioned earlier). So much depends on employment opportunities of course and on the geographical / water supply suitability of the area and so on.

    Alternatively, the insights from scaling research might indicate there is no economic point in trying to take the big population focus away from Melbourne. In that case, extra work and budgets would need to go into dealing with and ameliorating the socioeconomic “bads” which go with big city-ness. Better transport, better health, better education, better social programs and increased (enlightened) policing and so on.

    I am usually the biggest Chicken Little alarmist on this blog, yet I don’t see any great danger of Melbourne turning into a “hell-hole” if it gets considerably bigger. That will only happen if Victoria and Australia neglect the items I listed in the last sentence of the previous paragraph. Melbourne and Montreal are about the same population for their larger metro areas. Of course, there is a great deal of climatic and topographical difference. Nevertheless, Montreal has done some marvellous things which one would think Melbourne could emulate. Montreal has a wonderful underground metro and vast multi-level underground shopping malls and precincts under the city centre. Their cold climate is clearly an incentive to do this. But given the problems changeable weather, heat waves and climate change can and will cause Melbourne, building underground might be the go. I see they do have challenges but not insuperable ones in building underground. The stupidest thing possible is to build underground roads and tollways. That is sheer idiocy. They must build underground electric rail only when it comes to transport.

  94. @Ernestine Gross

    Now folks, let me remind you what Ernestine actually said so I can explain what my reply meant. What Ernestine actually said was:

    “Ikonoclast has covered the main points”

    And I replied: “He usually does.”

    Which clearly means I am saying that “he” (viz Ikonoclast) “usually covers the main points”. It was a slightly amused (well, I was, anyway) reference to Ikonoclast’s habit of “covering the main points” in just about every thread.

    Now if, Ernestine, you had said “He answered for me” not “he covered the main points” then, and this goes for you too, Ikono, I’d have known you were referring to him answering for you – about which you said nothing – and not to “covering the main points” which is what I was referring to.

    Are we all clear now folks ? Can I return to “towing the line” ?

  95. @BilB

    You write that ‘“many” people need to try a city of 400,000.’ I’m curious to know which ones you have in mind. Taking your figure as a rough one, there are few cities in Australia with populations between a quarter of a million and half a million, and none in Victoria.

  96. @J-D

    Try Geelong, J-D. It’s population in 2016 is 234,000 (approx.) and projected to keep growing. So, currently only about 16,000 short of your lower limit and will reach it Real Soon Now.

  97. @Ikonoclast

    Apology most definitely NOT required, Ikono, for this or anything else you say. It’s just that this was such a small, and I thought obvious, thing, I wasn’t expecting radically different deconstructions. At least, not from you 🙂

  98. @GrueBleen

    You write that ‘governments have been trying to make TROV more attractive for the best part of 100 years and so far haven’t succeeded’. You don’t write about what sort of things governments have done in an effort to make TROV more attractive (as a place to live). Possibly the things governments have done have been misconceived. Possibly they’ve been purely token efforts, or window-dressing. I don’t know that it’s possible to do anything better; I do think the question could be worth investigating. Also, even if governments have been making worthwhile serious efforts, the effects may have been cancelled out by other government measures. The following example is just off the top of my head, being based on the personal fact that I chose the place where I live (not in Victoria) partly to be near a railway station. As I recall, the Kennett government closed down a lot of railway lines in TROV. If there are significant numbers of people who (like me) find living near a railway station attractive, that closure would have made TROV significantly less attractive as a place to live. It may be that re-opening those railway lines would not be effective in making TROV more attractive as a place to live, or it may be that the cost would be too high for the benefit, but it might be worth discussing.

    The point you raise about immigrants settling in Melbourne (and not in TROV) doesn’t affect the argument, though. If it is possible (and I’m still not definitely asserting that it is) to make TROV more attractive as a place to live, the result would be either (a) more immigrants settling in TROV instead of Melbourne, slowing the growth of Melbourne or (b) more people moving from Melbourne to TROV, at least partially offsetting the movement of immigrants into Melbourne and again slowing the growth of Melbourne.

  99. @J-D

    “You don’t write about what sort of things governments have done in an effort to make TROV more attractive (as a place to live).”

    No I don’t, it being a messy topic extending over many years and I just don’t have enough lifetime left to become interested in a topic that will have about zero impact on my life.

    “Possibly the things governments have done have been misconceived.”

    Given the utter failure of governments to attract, or even force, people into TROV over at least the 60-odd years that I’ve taken any notice, I’d say that you might even have made a valid point there, J-D.

    “As I recall, the Kennett government closed down a lot of railway lines in TROV.”

    Yeah, and he sold off the electricity generating facilities (SECV), and amalgamated a lot of councils and a few shires etc and sold off a lot of school properties so that Melbourne now has a school site crisis and so on and so on. The railway lines closed were mostly seasonal produce carrying lines, not passenger lines. Though back even that recently, there wasn’t a real lot of daily passenger travel from TROV to Melbourne via rail – the single exception being Geelong-Melbourne which was, of course, commuting traffic of those who choose to live in Geelong but have to work in Melbourne. Both Ballarat and Bendigo are increasing somewhat as commute centres, but not at the volume of Geelong.

    Yes, if, apart from forcible moves such as the Worksafe shift from Melbourne to Geelong, ways could be found to make TROV noticeably more attractive than it ever has been before, then maybe Melbourne’s rate of growth will slow. Of course, there is the usual waffle about taking over various country towns (eg Warragul, Kilmore etc.) to make them into ‘dormitory suburbs’ of Melbourne, and as usual, absolutely nothing will come of it.

    The thing is, no matter what is tried, it will take decades to make it work (if it can be made to work at all), and in the meantime, Melbourne will have become intolerably crowded. The Melbourne suburban rail system is already seriously overcrowded with trains carrying more passengers than is deemed safe. Such is life.

  100. Referring to my post at number 6 above about scaling. The most economically effective trend might be for Melbourne to keep growing and TROV to remain as relatively low-populated as it is now. The assumption that the growth of Melbourne is bad is exactly that, an un-examined assumption. It runs counter to what scaling studies tell us about the economic advantages and some social advantages of cities scaling up.

    The issue lies in the social disadvantages of cities scaling up. The studies showed broad economic advantages from scaling up but a mix of social advantages and social disadvantages from scaling up. Thus the key issue is to get policies right to ameliorate or negate the social disadvantages and problems from scaling up. In theory, it’s simply a matter of using the economic gains from scaling up properly and putting them into social welfare spending.

    In terms of environmental protection, dense cities and lightly settled countryside might better protect the environment. More regional, low-density sprawl and more communication corridors though the countryside can only damage more environment and not save it. For a given population and a given primary industry level, a large, well-ordered city and more pristine countryside, rather than more regional cities, may be the best way to protect the environment overall.

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