Thursday, 2 August 2018

Alleviating Stressed Middle Income Australians and Deflating the Housing Bubble - an Open Letter on Policy Recommendations

Dear Reader,

I was listening to a story (ABC News Radio) about the Australian economy that reported on the Melbourne Institute's study on Household Income and Labour Dynamics - showing that there has been low growth in wages, underemployment (part time work), and that people (lower income) are stressed via spending a large proportion of their savings on rent or a mortgage.

As I see it, asset prices have increased dramatically, in a lacklustre jobs market, thanks to the influx of rich Chinese and Indians (and others), while ordinary Australian residents are still buying houses - albeit at hugely inflated prices - only because low interest rates makes such purchases "affordable".

A combination of immigrant buyers and low interest rates ramped up house prices putting stress on the vast majority of middle income Australians.

The best solution, as I see it, is to drastically cut overseas "investment" into our domestic housing market. The situation as it stands is inherently unfair, pitting the average Australian worker against vast overseas monies coming in from populous foreign nations. Our domestic markets are being distorted and made dysfunctional, having to cater for "investment" money drawn from the upper class of nations containing billions of people.

If house prices, that are in a bubble, collapse we can employ the same strategy used in Iceland where mortgage debt was reset to 110% of the market rate and the banks took a haircut.

In the case of underemployment and low wages growth, relative to asset price inflation, something not discussed in the radio report, this is due to the outsourcing of Australia's industrial base - similar to what we've seen in the USA.

High paying auto manufacturing jobs no longer exist. Many other sectors of the economy source their manufactured goods from overseas, namely from China.

While Australia still retains a number of high tech industries (most notably biomedical) one could argue that there have been no replacement manufacturing jobs - not in quantity. And one cannot easily provide for a family while working in the service industry.

The solution is to create conditions that will bring back manufacturing and protect the Australian economy from becoming a backwater, and thereby repairing the balance of trade figure (fixing the trade deficit).

Higher taxes could be imposed on imported products in order to nullify or diminish the benefits enjoyed by businesses that outsource where they take advantage of lower overseas wages (in order to profiteer). Companies would find it unprofitable to relocate manufacturing outside our borders. A penalty could also be applied to account for the environmental cost of producing goods in 2nd or 3rd world conditions (where additional production cost savings are made because they don't abide by rigorous environmental standards).

In the global scheme of things, where there is no level playing field, we are a very small fish. A level of protectionism is certainly warranted. Small countries like Singapore benefit enormously from such wise management - whereas Australia has a long standing sense of naivety when it comes to such matters.

The economic problems we face today can be solved, it is just a matter of facing the reality of our situation.

Here is a poker quote: "If, after the first twenty minutes, you don't know who the sucker at the table is, it's you."

Thanks for your time,


[Posted at the SpookyWeather blog, August 2nd, 2018.]

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