States try tax reform to fix housing affordability
On RN Breakfast with Fran Kelly
I was interviewed by Max Chalmers for this segment on RN Breakfast about the transfer from stamp duties to land tax that is happening in the ACT and proposed in NSW. Despite the title of the segment, neither government has housing affordability as one of its aims in these transitions.
The image to keep in mind is that of a doughnut, on the inside of which is economic and social freefall.
We need a certain amount of economic and social/political development to ensure everybody can live a good, healthy life with full social and political participation.
On the outside of the doughnut is an unsustainable impact on the environment.
The sweet spot, the “safe and just space for humanity” is, of course, in the doughnut itself. Mmm… doughnuts.
Conceptually it’s pretty straightforward. Practically, it is challenging.
Economics is traditionally defined as the study of the way societies allocate scarce resources. But in the modern world the reality is that, for rich countries such as Australia, there is no overall scarcity.
The challenge is to remain within the doughnut
Such countries have homeless and hungry people, for sure. But the also have enough resources, homes and food to provide for them. That they don’t is a question of distribution rather than scarcity.
In terms of the diagram, we already use enough resources to ensure nobody need be left in the hole on the inside of the doughnut. The danger is that we use too many resources and move beyond the outer edge of the doughnut into climate and ecological breakdown.
Here’s another diagram.
For quite some time amongst economists there’s been faith in what’s called the Environmental Kuznets Curve, where increasing consumption is said to lead to increased environmental degradation up to a point.
Beyond that point, as a society becomes post-industrial, extra consumption is said to lead to less environmental degradation as people become more environmentally conscious and use their wealth to buy different things – more services (such as yoga classes) and fewer goods (such as hamburgers).
While the Environmental Kuznets Curve does indeed appear to be real, there is every indication that the global peak in environmental impact is far higher than the biosphere can withstand, which means a diagram like this:
We will need to bring the peak down, and that will be difficult for precisely the same reasons that people remain poor amid extraordinary wealth.
One is the capacity of deep-pocketed interests to influence regulators and governments to maximise profits. The other is the extent to which neoliberal economic thinking permeates social and political structures.
The modern neoliberal thinking tells us the best outcomes are achieved when markets are “free” without government “interference”.
Government attempts to tax, fine or charge for environmental damage are portrayed as interference, rather than protecting the environment.
This is easy because each individual hectare of vegetation that’s cleared doesn’t, by itself, do much damage to the environment, just as each tonne of carbon dioxide that’s released doesn’t do much damage to the climate.
It’s possible to introduce a carbon price or a carbon tax, but its easy to lobby against. Australia’s lasted two years, and governments are frightened to have another go.
The pandemic has expanded what’s possible
The pandemic has shown us that it’s possible to overcome that fear.
Environmental campaigner George Monbiot points out that for 10 years the number of people living – and dying – on Britain’s streets had climbed year by year. There wasn’t enough money to house them.
Then suddenly when the pandemic hit, and they were seen as potential carriers, the money could be found.
He says for decades government and industry had claimed that people would never give up international holidays and business flights. When humanity’s future was seen to be on the line, they did.
Another article published at 10daily last year that I want to keep a record of in case the site gets taken down. (Note: I didn’t choose to use the word “househusband” in the title, that was the editor). Update: the 10daily site has since been taken down so the above link is broken.
My wife and I have recently switched back and forth in our roles at work and home, and the lessons I’ve learnt have been profound.
Only about a month into the new arrangement of me as lead parent and my wife, Cass, as breadwinner, we found ourselves sitting at the kitchen table on a Saturday morning. I had a list of things that needed doing around the house, shopping and various kids activities, and Cass had the newspaper and a cup of coffee just wanting to chill out and relax.
This was a total reversal from only a month earlier.
Of course, we knew that our roles would affect our behaviour and the way we related, but the extent that our role reversal resulted in a behavioural and personality reversal was shocking, even for a couple who have been fairly equitable for most of our relationship.
Cass has historically been a bit of a cranky morning person, balancing logistics of her day and self-care with getting kids off to school, while I tend to be pretty cheerful in the morning.
This flipped when our roles flipped. I was always amazed by how much time Cass spent texting in the evenings — and then suddenly I was doing it to organise all kinds of things to do with school and kids’ activities. There are too many other similar reversals to possibly list them all here.
The biggest realisation for me has been about the ‘mental load’ of running a household. I understood this in theory but, like becoming a parent, it’s not something you can fully understand until you do it.
Keeping track of what’s going on and what needs to happen in a complex household (i.e. one with kids or other dependents) requires substantial mental time and energy. This mental load falls disproportionately on women, even when both partners are working equally, often simply as a hangover from when women take leave from work in the early years of child rearing or simply due to gender role expectations.
Even during periods when Cass and I were sharing the parenting 50/50 we were not sharing the mental load. She knew it but I only kind of knew it and, I have to painfully confess, had partly dismissed it as gender related — she just cared more about some household things than I did.
What’s been equally striking is that, as I approached my return to work, I shed the mental load as my brain started to return to work mode. Things at home fell apart a bit; we didn’t have enough food in the house for school lunches, the bald car tyres haven’t been changed even though they were dangerously bald, a bike got left at a repair shop for a week after it was ready to pick up — the list goes on.
It may be tempting to draw on another broadly accepted gender stereotype; that women are better at multitasking than men. The multitasking skill difference may be real, I don’t know, but, if it is I reckon there’s a fair chance it’s just to do with practice. So many employed women have to do the balancing of cognitive load for work and home and, as a result, they become better at it.
Perhaps with practice I’ll become good at it too, but I have absolutely no doubt that there is only so much cognitive load we can carry and that carrying a job-related mental load and a household mental load is tiring and isn’t without costs.
I’ve returned to work, but only three days per week. The plan now is that we both work three days per week, once again dividing the parenting and housekeeping right down the middle. The big challenge is going to be how to divide the mental load right down the middle.
At least now I genuinely understand what that challenge involves, which I’m not sure I ever would have if I hadn’t had this time of being a full-time househusband.
This article was first published on April 15 2020 at 10daily, which has since shut down. I’m reproducing it here now partly to keep a record in case the web site ceases to exist. Update: the 10daily site has indeed been taken down so the above link is broken.
Yesterday, the International Monetary Fund (IMF) released the latest World Economic Outlook, in which it predicted Australia’s economy would shrink 6.7 percent this year.
This would be the biggest single-year fall since 1930 at the height of the Great Depression. They expect unemployment to reach 7.6 percent this year and climb to 8.9 percent next year. Despite noting Australia’s very large government spending program, the IMF suggests that greater fiscal stimulus may be needed to avoid even worse outcomes.
Meanwhile, Australia’s major political parties are both stuck in misguided and outdated attitudes towards government debt and deficits. During last week’s parliamentary debate about the $130 billion JobKeeper legislation, Anthony Albanese said, “We are headed for a trillion-dollar debt… It is a bill that will saddle a generation.”
If this dangerous thinking is allowed to dominate both sides of the narrow political divide in Australia over the next few years, then we will see unnecessary hardship and further loss of jobs on the Australian people.
This misguided thinking comes from the notion that the federal government is like a nationwide household and that if we spend too much now, we, as a nation, will have to tighten our belts in the future to pay for it. This may make intuitive sense but much of the true nature of money is not intuitive.
Paying attention only to money and debt often causes people (including economists) to lose sight of the real economy. The real economy is the production and distribution of goods and services. Our material standard of living at any particular time depends almost exclusively on the goods and services we are able to produce (and purchase from overseas) at that time. Is it possible for future generations to send goods and services back in time to pay for the current COVID response expenditure? Of course not, that’s a ludicrous suggestion.
Okay, so if we focus on the real economy and forget about the money for a minute, what are the real future consequences of spending now to support businesses and households? The fewer businesses go broke now, the quicker the recovery and the more rapidly we can get back towards full employment. The closer we get to full employment (and the full use of our infrastructure, factories, equipment, etc) the more goods and services we can produce and the higher the material standard of living we can have.
So what about the trillion-dollar debt then?
We have a very clear historical precedent we can use to shed light on the impact of debt and on the choices that lie before us. The highest level of government debt Australia has ever had was accumulated during World War II.
This debt, 120 percent of GDP, would be equivalent to a debt today of well over two trillion dollars. If Anthony Albanese and Josh Frydenberg are right about the current debt burden, then post-war generations must have really struggled under that debt burden, right?
As it turns out, the opposite is true. The 25 years following WWII are often referred to as the post-war boom. We had strong economic growth, high wage growth, rapidly increasing material standards of living and falling inequality.
During this period governments of both political persuasions ran near constant modest deficits and the level of government debt to GDP fell sharply. This counter-intuitive miracle occurred because governments weren’t focussed on paying off the debt but were instead focussed on productivity and full employment.
Policy thinkers in the Curtin government, trained in the new economics developed by John Maynard Keynes, had seen massive unemployment during the Great Depression and then zero unemployment during the war. They figured that if the government could bring about full employment during the war then they could bring about full employment during peace time. They laid out this plan in 1945 in a remarkable white paper, Full Employment in Australia, that’s still very much worth reading today.
Arguably the 20th century’s most influential economist, Keynes said, “Look after the unemployment and the budget will look after itself”. In the 25 years following WWII, unemployment in Australia averaged two percent and, as noted above, government debt to GDP fell sharply, despite governments continuing to run deficits.
The same could be true in the recovery from the COVID-induced recession — if only our politicians could understand it.
Falling debt to GDP while governments run deficits could occur because the combination of economic growth and inflation saw the economy outgrow the debt. The debt was never really paid off, but the Australian economy was fully employed and was producing enough goods and services to provide Australians with an increasingly higher standard of living.
As I’ve discussed elsewhere, Menzies very nearly lost the 1961 election because unemployment was creeping up towards three percent as a result of reduced government expenditure. Menzies, chastised by the result, immediately adopted Labor’s policy of intentionally running a deficit in order to reduce unemployment — and it worked.
The dangers of austerity
If we adopt the attitude currently dominant in both Labor and Coalition party rooms that this debt is a burden that must be paid off, we will have the opposite outcome. This could entail implementing so-called austerity policies, lifting taxes and/or cutting government expenditure in an effort to pay off the debt. Both increasing taxes and cutting government expenditure remove money from the non-government sector, right when they need it for the economic recovery.
Cutting government services, including health, mental health, education, research, environmental protection and more in order to pay off government debt will inevitably result in higher unemployment, worse health outcomes and worse economic outcomes. We know, both from sound economic theory and from the lessons of history, that we don’t need to focus on paying off the debt. This means, if we do suffer as a result of government debt repayments, that we are doing so as a political and ideological choice, not out of necessity.
Instead, we should focus on full employment and on the real economy and let the budget take care of itself.
Understandably, given we are in a crisis, the government has baulked at including superannuation contributions in the A$140 billion worth of $1,500 per fortnight wage top-ups it will be directing to six million Australians.
It will be up to the employer if they want to pay superannuation on any additional wage paid because of the JobKeeper Payment.
This is in the middle of a treasury led Retirement Income Review that is considering, among other things, whether the current 9.5% of salary contribution should be increased to 10% and then to 10.5% and then in a series of annual steps to 12% by 2025.
In considering the idea (it is actually leglislated – if the government decided not to go ahead it would need to unleglislate it) it helps to go back to basiscs.
The blinding power of money
The trouble with money is most people are so busy looking at it they are blind to what’s going on in the real economy – by which I mean the production and distribution of goods and services.
Our current material standard of living depends almost entirely on our current ability to produce goods and services (assuming for a moment imports are funded by exports).
Similarly, our standard of living in 2050 will depend almost entirely on our capacity to produce goods at that time. This means it has little to do with how much money is in our superannuation accounts.
Part of the justification for superannuation is to get us more resources in retirement, and it will for those who have big super balances, but it won’t do much to change the total amount of resources available at the time.
The limits to saving
Often it’s put another way. We are told baby boomers need to fund themselves in retirement, instead of relying on pensions paid for by those who are still in the workforce.
But imagine a perfect scenario where every retired baby boomer has $1 million in super, freeing those still working from the tax burden of funding the pension.
When the boomers are using their super to buy services and goods, who are they going to take them away from?
You guessed it, those still working.
They’ll be giving up resources to support the retirement of boomers, whoever supplies the cash.
In the main, saving can’t create resources
If there was no superannuation and the government instead taxed current workers in order to fund retiree consumption, the real cost to workers would be the same. That cost is the provision of goods and services to retired people instead of workers.
Individuals can indeed save for the future by foregoing some goods and services today in order to have more of them later. Financial planners refer to it as consumption smoothing.
But an entire society can’t save for the future through consumption smoothing.
If Australia as a whole consumes fewer goods and services in one year, it is likely to reduce rather than increase its future wealth because it is fully utilised labour and capital that drives investment and productivity.
That’s what lies at the core of misunderstandings about the superannuation system. Foreign investment aside, it can’t allow an entire society to save for the future to support itself in retirement.
It can skew the distribution of resources in future years, away from those of working age and those with low super balances towards those with (tax concession subsidised) high super balances.
Boosting productivity can help
If our goal is an adequate and sustainable income in retirement for all Australians, our main priority ought to be ensuring that those remaining in the workforce are productive enough to support themselves, their children, those without work and those who have retired.
In other words, if you’re worried about the economic impact of our ageing population on our material standard of living (and there are reasons not to be worried) you would want our focus to be on productivity, rather than retirement savings.
To the extent retirement savings are used for productivity enhancing investment, that’s good. The reality is much of our retirement savings are funnelled relatively unthinkingly into an already bloated financial system where they expand speculative bubbles.
Like most important economic questions, the best retirement income system is not, at its core, solely an economic question, it is also a moral and political question about distribution and inequality.
So, with that in mind, here’s what my personal moral (plus economic) analysis tells me would be the best retirement income system.
We could give the money back, slowly
The best way would be to get rid of compulsory superannuation, give all the money back to account holders (slowly to avoid too much inflation), mandate a 9.5% pay rise in its place and redirect the tens of billions of dollars we currently spend on superannuation tax concessions toward rent assistance, a higher Newstart allowance and a higher pension.
With retired renters better looked after, a moderate (say 20%) increase in the pension, and continued indexation of the pension to wages, no retired Australian would be living in poverty.
It’d be sustainable so long as we ensured sufficient worker productivity, primarily through full employment, appropriate infrastructure investment and well-supported education, training and research.
I was interviewed by Amy Mullins for her terrific show Uncommon Sense. This show is rare in that it spends substantial time on subjects, really getting into some of the nuance and complexity behind the headlines and slogans. We spoke about the punitive treatement of unemployed workers in this country and how it wasn’t always this way.
Humans, individually, can be incredibly brilliant but collectively we’re often puzzlingly stupid.
To take a simple, uncontroversial example, we know that forests are critical for our survival. They influence rainfall, climate and the very atmosphere that we breathe. Despite essentially universal agreement about this fact, we’re continuing to destroy them at an extraordinary rate. It seems, despite our intelligence and our astonishing global communication infrastructure, that we’re collectively incapable of aligning what we know needs to happen with what we do.
There is a thought experiment about artificial intelligence, first articulated by Nick Bostrom, known as the paperclip maximiser — bear with me a moment, this is related to human intelligence and sustainability. In this thought experiment, we imagine that there’s an AI system used by a company that makes paperclips.
This AI is tasked with increasing paperclip production and is fed all the necessary information regarding paperclip making, including materials, labour, human motivation, supply chains and so on. Critically, it’s also capable of learning how to learn and does this at an exponential rate.
To cut a long story short, the AI gets better and faster at making paperclips at a rate that far exceeds human capacity to keep up or to adapt. Eventually, it turns the entire universe into paperclips, with all humans and the biosphere being consumed quite early in the process. The thought experiment, not meant to be taken too literally, was designed to explain that AI doesn’t need to have general intelligence and self-awareness to be a threat but can be a threat simply by being single-minded and able to adapt faster than we can react.
I recently heard Daniel Schmachtenberger taking this thought experiment in a very interesting and thought-provoking direction by saying that human society is already the paperclip maximiser but instead of making paperclips we’re making dollars – which are primarily just zeros and ones in bank databases. Our collective intelligence system has one overriding purpose – to turn everything into money; trees, labour, water, human babies. Everything. It’s also very good at learning how to learn and is extremely good at eliminating threats.
The paperclip maximiser economy is not controlled or driven by anybody, it’s just a product of our global corporate capitalist economic model. The rules of the game are such that if you don’t strive to turn everything into dollars then you’ll likely be defeated (in whatever you’re trying to do) by somebody or some institution that is.
There are plenty of people, organisations and political parties who are desperately trying to assert that some things are more important than money. Most people agree with them, but the money-making paperclip maximiser continues on regardless, barely diverted at all by even the most strident, most well-supported initiatives, such as reducing tropical deforestation or reducing greenhouse gas emissions.
As Nietzsche prophetically warned, god is dead, and we have replaced him with the paperclip maximiser. Our collective intelligence system has no alternative, so even if we were to somehow collectively stop buying palm oil, for instance, Indonesians would still clear orangutan forest habitat to produce the next most profitable commodity.
Just as we know that destroying the forests of the world is destroying our future, we also know that consumerism doesn’t make us happy. Evidence abounds that the important things for human flourishing are connections to other humans, connection to nature and feeling needed and supported. The paperclip maximiser has us sacrifice those things in order to work hard and earn money.
In part, we need to make a lot of money so that we can afford housing that’s become ludicrously expensive because, instead of being primarily about shelter, housing has been captured by the paperclip maximiser and its primary purpose is wealth accumulation. Without irony, our newspapers can have articles side by side bemoaning the rise in homelessness and discussing the details of the “housing market”.
However grim this might seem, it is possible to beat the paperclip maximiser. We already know that the consumerist treadmill isn’t good for our mental or physical health. All we need to do is talk to people (real people, face to face) and work out what our core values are. Then we need to consciously and deliberately build a new story for humanity to move towards. The story of state-corporate capitalism has run out of puff. Most people aren’t buying it any more but there isn’t another well-championed narrative to orient ourselves by.
Social media platforms are the paperclip maximiser’s best friend. We’ve taken some of the brightest minds in the world and turned them to the task of designing addictive systems that keep us online for as long as possible in order to put advertising in front of us. These systems are personally tuned to the things that each of us will find addictive.
Keeping us online instead of in the real world keeps us lonely, sad and vulnerable to all the wiles of the paperclip maximiser. We shop and we strive for higher-paying work that will allow us greater status and more virtual praise from other sad, lonely, isolated people.
Have you noticed that when you’re having a great time with friends or family you don’t feel the need to check your social media feeds as much? The paperclip maximiser relies on us being plugged into the system of control, the system of polarisation, the system of artificial wants and needs.
Ancient Futures author, Helena Norberg-Hodge is fond of saying ‘our arms have grown so long that we can no longer see what our hands are doing’. It’s my personal belief that, as part of this change, we need to re-localise our shopping as much as we can so that we can see the faces of the people affected by our choices and the environmental impacts.
It’s time to unplug and work out what our real wants and needs are and to build a new collective intelligence system that will deliver those needs. There are efforts already underway to do just this in Australia with Australia remade being one great example.
Not only will doing this save the biosphere but it will make us more connected and more satisfied with our lives. Who wouldn’t want that?
This is an edited version of an essay that was runner up in New Philosopher magazine’s “being human” writer’s prize and was first published in issue #25 of the Magazine.
Warwick Smith is an economist and writer and is an honorary fellow at the School of Social and Political Sciences at the University of Melbourne. He tweets @RecoEco.
By Warwick Smith
An essay I wrote has won second prize in New Philosopher magazine’s latest writer’s prize and has been published in the magazine.
As I did with my last New Philosopher essay, I’ll probably publish this in another outlet after the next edition of New Philosopher comes out. If you want to read it in the meantime, pick up a copy of NP.