Decentralisation is only a pipe dream whilst we are running an economic model and strategy that has centralisation baked in.

Bernard Salt and George Megalogenous continually ignore what is driving the population concentration, beyond noting that immigrants seem to be voting with their feet.

Their lack of curiosity is remarkable considering the traditional,driver of concentration – labour intensive manufacturing has been on decline for decades and we have been retreating to an economic model based on minerals / agriculture with loads of real and financial asset sales. Not much of that particularly requires population concentrations in Sydney and Melbourne.

What has been driving population concentration in Sydney and Melbourne (particularly by immigrants) is crystal clear and it is the same thing that has been bending our economy out of shape since the 1970s.

Driving the economy with taxpayer guaranteed private bank credit creation that is directed towards unproductive speculation in asset prices and secured by those rising asset prices.

When that is the fundamental driver of economic activity it is no surprise that the largest cities will be the centres of that activity for the simple reason that rising asset prices secure more leverage which drives asset prices higher which then secure more leverage. The cycle continues especially when the taxpayer is effectively the guarantor of the credit creators – aka the private banks.

Decentralising Australian cities. Why the dream is as far away as ever.

While tax policy incentivised asset price speculation with debt has driven up house prices right across Australia the model works best where there is also population growth demand pressures. When there is a bit of population demand pressure the house price Debt Machine really roars.  In Sydney and Melbourne it has nitro injection.

Keeping the model operating requires a high rate of immigration as maintaining real demand pressure for real estate is critical. Unproductive private bank credit creation only gets you so far – without demand pressure eventually the debt soufflé will weaken and eventually collapse. The circa 2% vacancy rates in Sydney and Melbourne are vital ingredients in keeping the Debt Machine purring.

Immigrants are attracted to Sydney and Melbourne for 2 key reasons.

1. To find work in any of the industries feeding off the model – real estate, finance, construction etc.   

Crumbs from the table of parasitical speculation may be crumbs but they will feed a family.

2. To join in the game by taking on leverage and placing a bet themselves.

Could we support the current levels of immigration if we were not running the current private bank unproductive credit creation asset price pumping model?

Maybe but getting from here to there is not straight forward as first you need to address the current model so that economic activity is redirected towards productive activity rather than unproductive debt based speculation.

And let’s face it we are not even having that conversation…yet.   

Ross Gittins and most of his colleagues in the major debt bubble spruiker publications still applaud indiscriminately capital inflows and credit creation as being wonderful.  Until we start assessing private bank credit creation and capital inflows by reference to whether they add to the productive capacity of the economy we are still in the starting blocks.

Even on macrobusiness such talk is often dismissed as ‘money crankery’.

When we fix our banking and monetary model it is much more likely that we could support high population growth rates and the result would be an expansion of productive economic activity right across Australia. As that growth would not be parasitical but actually involve growing the pie, individual slices are more likely to be growing as well.

Whether environment pressures and issues might still warrant slower population growth rates is another question but in principle we could apply more of the bigger pie to better protecting our natural heritage.  However, our track record in that regard is nothing to boast about.

Until we start talking about WHY our higher rates of immigration are being concentrated into the centres of Ponzi economic activity we will continue to be puzzled by the experience and find ourselves listening to the pipe dreams of Salty Bernard and Uncurious George.