Macrobusiness

Building a Big Australia…… the honest way.

The debate about how big the population of Australia should be and how quickly we get there would be a lot more civilised if those promoting a Big Australia were more honest about what is required to create a Big Australia and spent less time calling everyone who disagrees with their grand plans ‘racist’ or ‘xenophobe’ or a supporter of One Nation.  There is a way we can build a Big Australia and honesty is always the best policy.

The debate about the current size of Australia’s population and the rate that it is growing is getting heated and ugly.    Although the Big Business supporters of creating a very big Australia ASAP are keen to claim that their opponents are a bunch of ratbags and racists the simple fact is that there is a breathtaking lack of honesty in their campaign for a very Big Australia and more and more members of the public are starting to notice.16797842_2263570940448247_840417104403875622_o

Fortunately the Glass Pyramid is here to help and to provide the Big Australia fan club with the honest explanation they desperately need to give the public but to date have dismally failed to do so.

This post is not about whether a Big Australia will be funky ‘global’ wonderland of vibrant hipsters living a Star Trek Federation vision splendid OR instead two or three “global sized” congested and dysfunctional slums surrounded by broken environmental systems.

The Glass Pyramid will leave those projections to those with anxiety conditions and fertile imaginations.

This post is simply about what is involved in terms of resource allocation in pursuing a  Big Australia ASAP.   Within limits, we can have whatever type of Australia we want provided we are prepared to allocate the resources required to get there and put up with the consequences.

Once the public have proper information about the resource allocations required by alternative population growth plans they can vote for the one they like, either by voting for politicians that support their preference, or better still, vote in a plebiscite like the one that finally settled the issue of same sex marriage.

So what does a “honest” Big Australia campaign look like?

The fundamental thing that an “honest” Big Australia campaign requires is an explanation to the general public of the resource allocations that are required to build a Big Australia and explain what if any sacrifices will be involved and who will be expected to make them.

The key feature of a dishonest Big Australia campaign is a refusal to explain the resource allocations that are required. A dishonest campaign will instead plough on regardless, cranking up the population growth rate and simply hope to silence critics with offensive insults.

But, as we are now seeing, the dishonest approach has its limits. If you fail to allocate the economic resources required to provide the things that a rapidly growing population requires, eventually living standards will start to decline, the population will start to notice and opposition to your Big Australia plan will grow stronger and stronger by the day.  Eventually the strategy of calling opponents racist falls apart when it becomes apparent that opposition to the Big Australia ASAP plan is not limited to members of one particular ethnic, religious or cultural background.

So effectively a successful Big Australia campaign has no alternative to honesty.

It must explain the reasons for the change in current resource allocations and obtain support for those allocations or find itself dealing with a growing number of opponents who cannot be dismissed as ignorant racists.

And don’t think the Big Australia crew can just crouch down behind some snazzy graphs generated by data “cherry pickers” in certain University departments and argue that they prove that life has never been better, as the population of Australia expands at a rapid rate.

If the actual day to day lived experience of a substantial chunk of the population feels like living standards are falling they will not be interested in your graphical insistence that they are mistaken.  Chances are they will work out very quickly that you are producing very selective ‘cute’ data and talking from a comfortable “living standard bubble” in some upper middle class / rich postcode protected by high real estate values and/or heritage protection orders.    The great unwashed understand very well that Big Australia promoters, located in expensive inner urban locations and who don’t have to commute often, don’t believe that commuting is getting worse week by week.

And allocating resources is NOT just chanting mantra’s like “we just need to plan better” or “we need to think smarter” or “we just need to adjust our expectations” or “we just need to live in tiny apartments above railway stations” or “we just need to recycle some more public assets“.

What all of those buzz phrases  boil down to is either you have not bothered to think about the resource requirements or you want to build a Big Australia on the cheap by not allocating real economic resources to the project.   In either case the result will be lowering the current living standards of a substantial chunk of the population and often that means nothing more than congested infrastructure, less services and detached homes with backyards for young families that are manifestly unaffordable.

So if you support a Big Australia, stop mucking around, be honest and start talking seriously about the resources required by your grand plans and specifically where they are going to come from and how you plan to divert those resources from their current allocations.

What resources does a Big Australia “ASAP” plan require?

Lots and lots of them.

There is simply no way to avoid this fact of life.  A growing population requires an enormous investment of resources, especially if your goal is to maintain current living standards.   Keep in mind that current living standards in Australia are the result of decades and decades of steady investment in infrastructure and services.  It is that depth of capital investment over a long period that provides the supporting structure for our current living standards.   That investment did not happen over night.

In order to really understand our current living standards you need to look at all the capital investment in infrastructure and services over the last 200+ years as ALL of that investment is what forms the basis of our living standards.

If you want to expand the population of Australia by close to 400,000 people per year (about 200,000 from permanent immigration) you need to dedicate a lot of resources to produce the depth of investment that is necessary to avoid a drop in current living standards.

Trying to do it on the cheap by not making investments that match what was invested over decades will inevitably cause the standard of living to fall.  If you fail to make sufficient investments you are simply stretching decades of investment over a much larger group of people.  It does not take much of a fall before people start to notice.  More crowded trains, bigger queue at the medical centre, harder to drive around our cities or find a park at the shops.

And the faster you try to grow the population the more resources you will need to dedicate.  So the challenges of a Big Australia program increase dramatically as the rate of growth rises.

And keep in mind that this does not include the investment required to replace existing infrastructure that is wearing out.  That is additional to the investment that is required to extend current living standards to a much larger number of people.

You need to be buying up millions and millions of tonnes of concrete, steel and other commodity inputs to dig road tunnels, build dams, widen main roads and freeways, build and expand water and sewerage systems, build larger electricity generation systems, build new schools, build new hospitals, police stations, public libraries etc.

You need to allocate lots and lots of workers to these infrastructure tasks and to the conversion of agricultural land to new subdivisions and new local roads.

You need to accept that national income will need to be allocated to buying up new buses, new cars, new TVs, new lounges, new kitchen and home appliances from overseas.

Who pays?

At the end of the day it does not matter whether the above resources are paid for by the government or private individuals.   They all amount to a massive allocation of national economic resources to the objective of building the infrastructure required to expand the population of Australia as fast as possible.

In other words you need to divert massive amounts of national economic resources to doing nothing more than extending current living standards to a larger number of people.

There is nothing wrong with adopting the objective of a “Big Australia” or trying to get there as fast as possible but that objective is not easy nor cheap and it is fundamentally dishonest to ignore it or wave it away as a second order concern.

But what if we are happy to allow current living standards to fall?

This may sound bizarre but it is quite possible that members of the Big Australia fan club are not concerned if Australian living standards fall.

The Big Business members of the Big Australia fan club are interested in the profits of their enterprises.    For many of those enterprises whether living standards fall matters little, as what matters to them is the size of the market.   Even poor people will still buy toasters, drink milk, eat bread (or cake) and lots of poor people are as good for that as lots of less poor people.

Don’t assume that the Big Business lobby give two hoots whether the living standards of current Australians drop as a result of their Big Australian ASAP campaign.  In fact it is highly likely that they will be deeply opposed to any resource reallocation that involves government seeking to divert some of their profits to building the living standard supporting infrastructure that a swelling population requires.

On what might be called the “globalist progressive” side of the Big Australia team there may also be not much concern if current living standards fall.   From the perspective of the global welfare functionary, it does not matter if the living standards of Australians fall if the living standards of an immigrant to Australia rises substantially.  According to the reductionist logic of the average global welfarist the world would be a better place if the developing world packed their bags and moved to the nearest developed country on the next flight.

The idea of increasing living standards of people where they live, in the manner they would like them increased, is usually too much for the average global progressive to comprehend as at core they assume that everyone on the planet wants to live like them – a middle class ‘western’ kid in a vibrant post modern whirl of appropriated cultural experiences and fast tasty international dishes from Menu Log.

The “Globalist Progressive”  wants to share so very much it almost hurts – but it is not usually their stuff they plan on sharing.

So don’t assume for a moment that the Big Australia fan club have your back.

Both the Big Business and the “Globalist Progressive” members may have more in common than seems possible.  They simply may not not care about your living standards as they are quite certain that whatever happens THEIR living standards will rise as all the unpleasant consequences and declining living standards of the Big Australia ASAP plan will take place far from the borders of their privileged ‘post codes’ and funky hot desks.

A grand “Nation Building” plan.

On the, perhaps unwarranted, assumption that the Big Australia fan club DO have the interests of the average Australia at heart, and by that we mean at the very least they want to maintain current living standards, how should they approach the tricky issue of resource allocation.

The Glass Pyramid recommends that they frame the Big Australia project as a massive undertaking in Nation Building….capital N and capital B.   Only by making the Big Australia project sound like an essential demonstration of national character do they have any hope of getting people to accept the resource reallocations that will be required.

The language of sacrifice for the greater good must be central to all of their Big Australia “informational” stakeholder engagement campaigns.     Just as households were exhorted to buy War Bonds to defend the realm so too must households come to understand that a Big Australia is so important that a national call to action is required.

Probably the best approach is a good old fashioned scare campaign about steaming hordes ready to invade and plunder unless we beef up our numbers and fight them on the beaches etc etc.

The Big Australia crowd have been hinting at such a campaign in a half hearted way.  Usually by pointing to some our very populous neighbours and making veiled references to “implied licenses” from unstated international organisations.

They are a bit shy though, probably they feel a bit awkward trying to explain why we would be encouraging mass immigration from countries that they like to hint might be an invasion threat.      However there is no need for shyness, the Glass Pyramid recommends they characterise all the Big Australia immigrants as devotees of the works of Banjo Patterson, Paul Hogan, Colleen McCullough and Henry Lawson and insist they are determined to defend our culture to the last podcast or audiobook.  On arrival they will toss them each a footy, meat pie and the keys to a new locally produced……..oh well.

The most important thing about creating a mood of national emergency to drive the Big Australia ASAP program is that national emergencies and changes to current allocations of economic resources go hand in hand.

Hush don’t talk about the environment

The Glass Pyramid recommends avoiding any discussion of the environment as generally Australia’s natural systems have taken a flogging from past and current population levels and the furry beasties, bugs and birds of Australia are likely to book a seat to the nearest overseas zoo if they catch wind of any proposal to double, triple or quadruple the population of humans roaming around the place.

Though the cane toads will probably stick around and feel perfectly at home.

The allocation of economic resources required to build the Big Australia ASAP

The most important resources required to create a Big Australia ASAP are labour and capital.

Explaining how these resources will be allocated to ensure the success of the Big Australia ASAP program is essential.   People need to understand how the required infrastructure will be built and paid for.

To date the Big Australia crowd have completely failed to explain the resource allocations their grand plan requires.

Labour

Considering the unemployment rate remains stuck at 5% despite 20+ years of ceaseless economic growth we clearly have some idle labour resources that could be deployed to the massive Big Australia building “To Do List”.  And that 5% is understating the amount of labour capacity out there as it does not take much work (1 hour per month) to be considered employed and if you have given up looking you are not counted either.

With a bit of training some of this army of available labour capacity could be set to work bulldozing some of the heritage inner city suburbs of Sydney and Melbourne and prepare the lead poisoned top soil for rows of 40 storey apartment blocks like they have in proper global cities like San Paulo, Jakarta, Hong Kong, or Shanghai, or even the endless 4-5 storey apartment buildings like they have in parts of London or Paris.  Paris has some pretty impressive 20+ storey brutalist blocks as well…though the Big Australia crowd don’t usually like to talk about Global City slums as it doesn’t match their ‘vibrant’ global city cafe latte brochures.

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Others could be at work in the outer suburbs digging up agricultural fields and laying down sewers and power systems so all those new families who prefer detached housing with a backyard for the kids can have that choice.   Not everyone wants to live in a 40 storey apartment blocks after all – especially the Big Business promoters of a Big Australia who are generally into gated communities on acreage.

Plus we have the bulging biceps of the Australian banking and financial sectors.  If we could unleash all that personally trained and finely honed muscle flesh into building dams up and down the east coast for water supply and pumped hydro the job would be done in no time at all.  As the Banking Royal Commission has revealed, when the motivation is right the executives in that sector will leave no stone unturned and building dams involves turning a few stones.

Shrinking the unemployment rate to close to ZERO  would be a huge selling point for the Big Australia crowd.

A promise of national full employment would get public support happening.

The only problem is that so far the track record of the Big Australia ASAP crowd is hopeless.

Having driven the Big Australia program flat out for 15 years there should be full employment right NOW.   No one should be involuntarily unemployed and everyone should be working flat out building our great Big Australia right now.

What has gone wrong?

Pretty simple.   They have been ‘growing’ the Australian population so fast and have been so slow building the required infrastructure that a serious reduction in the unemployment rate below 5% has not happened.     This is a double disaster because not only have they not been using the labour force available and ready to work but by failing to do so they have allowed living standards for far too many Australians to start to slide and that is making them increasingly unhappy with the Big Australia plan.

The odd thing about our 5% unemployment rate is that even a population “stagnant pond” like Japan with a shrinking population has managed to keep unemployment at about 2%.    How is it that the Japanese can keep everyone busy as their population is falling and we cannot keep everyone busy while trying to be the population growth Usain Bolt of the developed world?

Of course the failure of the Big Australia program so far to drive down unemployment to 2% or less might suggest that keeping unemployment at 5% of higher is actually an objective of some of the Big Australia supporters.  The Big Business crowd quite like having some ‘downward pressure’ on wages – plus they are not very interested in maintaining living standards anyway.    If that is what the Big Business supporters of a Big Australia ASAP are trying to do a bit of honesty would not go astray.

So the future for the Big Australia campaign could be very very bright if they made it an explicit goal of the grand Nation Building project to reduce unemployment to below 2%.

Who would not vote for that?

Capital

Difficulty finding the capital required for building the infrastructure and services required by a Big Australia is even more mysterious than the failure of the Big Australia program to have already reduced unemployment to 2%.

Australia is a very rich country and in decades when we were much less rich we used to be able to build all sorts of public assets and locally owned productive capacity.

Yet governments across the land (especially the Liberal ones and the Neoliberal-lite ALP governments) insist that we cannot build a single public asset without first selling another public asset and if we are not prepared to do that we must ask private parties to build the asset and give them a 30 year income stream in return.

So what has gone wrong?

Where has all the capital gone?

Why is it so hard to create the capital assets that are required by a Big Australia ASAP program.

If only the Big Australia fans could find a solution to the mystery of the missing capital required by Big Australia infrastructure assets they would probably find a lot more support from the general public.

Found it! – Burying capital in existing residential housing

The simple answer to where a lot of the capital is going is existing residential housing.

Australia’s massively over priced existing residential housing is bizarre considering there are only 24 million people living on a continent sized island.  One of the mysteries of the Big Australia plan is why would anyone want to subject hundreds of thousands of new people to the horrors of the Australian housing/land market? Talk about driving down global welfare ….boom.

No country, with as much flat land as Australia, exceeds our talent for pouring economic resources into pumping up the prices of a mere fraction of the available land mass.

And we are not talking about new housing either.  Most of the capital we have sunk into residential housing has been sunk into the existing housing stock.   All those extensions, new kitchens, landscaped surrounds, feature walls and hot lime splash backs represent a massive misallocation of economic resources by Australia.   But the capital sunk into renovation rescues of 19th century worker cottages is tiny compared to the capital sunk into nothing more than pumping up the values of a tiny fraction of our land mass.

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At the same time as we have ‘invested’ hundreds of billions of dollars, and allowed our banks to clock up massive external liabilities in the process, into an unproductive asset like existing residential housing (yes nitpickers insofar as it provides shelter it is productive) we have been closing down productive sectors of the economy.

Talk about an own goal.

The simple fact that the Big Australia crowd need to face is that if we want the serious amounts of capital required to build everything a rapidly growing Big Australia ASAP plan needs we need to stop plunging it into existing residential housing and start building:

  • the infrastructure required to support a Big Australia
  • the productive industries that actually do something useful – like compete with imports and compete in foreign markets.

How do we divert capital from existing residential housing?

Simple.

The Big Australia crowd must immediately start campaigning for APRA to be directed to closely regulate private bank credit creation and instruct them to:

  • Heavily restrict all credit where the security for the loan is existing property.
  • Encourage credit where the security for the loan is new residential construction
  • Encourage credit for any purposes that involve creating the new infrastructure and services required by a growing population.
  • Encourage credit for new productive capacity in the economy.

The Big Australia crowd needs to arrest the falling public support for their wonderful plan and must insist that as much capital as possible is directed to productive Nation Building objectives rather than over capitalising heritage shacks and lazy tax effective punts on asset prices.

Now it is true that restricting the availability of private bank credit where the security for the loan is an existing house will soften the prices of existing housing and this may make the owners (and tax effective speculators) of existing housing a bit unhappy as their unearned ‘paper gains’ vanish, but the Big Australia campaigners will be able to explain that it is a very small sacrifice by a few compared to the grand plan of creating a very Big Australia ASAP.

Yes ! You read that right.  If you want a Big Australia ASAP we have to pop the bubble in existing residential prices. We have no choice. The bubble will pop as we divert that unproductively deployed capital to all the productive stuff that a rapidly growing Australia requires.   Goodbye “equity maaaaaaate”.

The good news is that if anyone tries to argue that diverting capital from existing housing might have negative economic consequences due to a diminished “wealth effect” or “trickle down”  (otherwise know as rich people eating truffles and giving tips to shoe shine boys), the Big Australia supporters will be able to point to all the economic activity resulting from the project “paving paradise”   – aka building new cities, suburbs etc – and rebuilding our productive economic capacity.

But surely we need more capital than just stopping the fetish for European appliances and ‘equity maaaaate’ purchases of imported cars?

That is true.

We certainly need more capital than just diverting private bank credit creation away from existing residential housing to new residential housing.    We need to allocate scads of capital for all the infrastructure that needs to be built.

Now we are talking about serious nation building.  The kind of thing that Japan and Germany did after being demolished during World War II. The kind of thing that China and the other ‘tiger’ economies have been doing for the last 50 years.

So the best thing to do is to have a close look at what those countries did to make themselves great (or great again) in a very short period of time.  None of those countries had access to a magic money tree.   They simply made sure that they allocated their energies and resources to doing stuff that matters.  Understanding how they did that is essential and the best way to get up to speed quickly is to watch this excellent documentary about Professor Werner’s book “Princes of the Yen” about the post war Japanese economic recovery.

And if the Big Australia crowd really do care about achieving their goal of a Big Australia as fast as possible they need to get serious about making that objective central to how we allocate economic resources in Australia.

And let’s face it the Big Australia crowd are clearly very keen on insisting that growing the population of Australia as fast as possible is the most important national priority.

Pick the method you prefer

There are a range of options available to the Big Australia crowd to really get the capital flowing and resources allocated to their grand Big Australia ASAP Nation Building project.

If you trust government to allocate resources

Big Australia fans could campaign for the RBA to directly buy bonds issued by the Federal Government to fund the construction of infrastructure required by the Big Australia project.   Mr Morrison could write “IOU the RBA $10B and will repay it in 5 years” and hand it over to RBA Governor Phillip Lowe.

These bonds would pay zero interest and be non-transferable.   The RBA would buy them by simply creating the money required by making some credit entries in the government ES account at the RBA.   The government would then use that account balance ‘money’ to employ some of the 5% unemployed to start some of the Nation Building projects.  The RBA creates money every day of the week when it ‘buys’ bonds from private banks so there is nothing special about this proposal.

We own the RBA so the fact our goverment is not paying interest on these special bonds does not matter either.  Paying interest to yourself does not make much sense.

Now of course there is a limit to this option as the government will be limited to the amount of unemployed labour in the economy in terms of the projects it can start. Eventually it will run out of unemployed labour resources – even if does shrink the parasitical banking industry and crimp the home renovation sector, but the good news is that the whole point of the Big Australia program is to bring in lots and lots of new Australians so the government could increase the rate of immigration if it runs short of local job seekers.

Inflation will need to be watched carefully as the economy starts to reach full speed (and also because Mike Sutchbery editor at the AFR and almost the entire Op-Ed staff at the Australian will be shouting itself hoarse about Weimar and Zimbabwe).    If inflation does start to pick up as the economy reaches full speed, the RBA could recommend that the Federal Government raise money to redeem some of the ‘special bonds’.    Cutting spending or increasing taxes will do the trick of extracting ‘money’ from the economy if inflation appears on the horizon as the economy roars as it builds a Big Australia.

If you don’t trust government to allocate resources

If the Big Australia crowd, or some members of it, don’t trust the government to allocate resources there is an alternative which involves using the private banks.  This is the technique used by the Japanese post WW2 to grow their economy quickly.

Essentially all that is required is that the government tightly regulates the purposes of bank credit creation.

For example the government could give each of the four major banks (and the smaller banks) quotas of credit to create within a period and specify what purposes the credit can be created for.

For example it might be that credit can be extended to companies building sewerage systems or other infrastructure associated with new housing development. Or business competing with imports or seeking export markets for their goods.

Ensuring there is plenty of bank credit (effectively new money) directed to an industry means it can expand its operations.  Building a Big Australia needs businesses that can expand to deliver infrastructure and services to a Big Australia.

The government is not picking winners under this plan, it is simply setting targets for private bank credit creation with guidance as to the types of purposes it can be created for.  The Banks will do the job of picking the winners or ‘credit worthy’.

What if you really don’t trust the government

If you really don’t trust the government much at all and don’t even like the idea of carefully regulated private bank credit creation, you could simply have the RBA buy the governments special bonds but require that the government only expend that money in the form of tax cuts.

In other words the government would not seek to direct how the money created by the RBA is spent at all.  It would simply maintain currently spending allocations for all the essential services and cut taxes and thereby leave more money in the wallets of the general public and let the ‘free market’ do its thing.

That would mean that as the level of savings rise, as the government maintains current spending but taxes less, those savings will be available to be lent to people or business seeking to supply services and infrastructure to the swelling population.

While this approach will appeal to the free market fans (assuming they are not also sound money zealots and have conniptions at the thought of government controlling public money creation), the results of running a high rate of immigration and just hoping that the free market will supply all the infrastructure and services required is a leap of faith that probably only a minority will be prepared to make.

SUMMARY

To bring some civility to the debate about what should be Australia’s population growth rate and what should be the population ‘target’ for Australia it is critical that we have some honesty from the Big Australia fan club. Both the Big Business tribe and the “globalist progressive / global welfare function” collective.

To date the supporters of a Big Australia ASAP have been severely lacking in the honesty department because they have failed to specifically and directly explain what resource allocations are required by their Big Australia dreaming and how they plan to achieve them.

Armed with this Glass Pyramid special edition post they will be able to boldly go forth and mount a convincing Nation Building Big Australia Plan of shared sacrifice where the economic resources of the nation are diverted from the self indulgent consumption excesses that currently obsess the nation into productive and useful purposes that allow the creation of a very Big Australia.

According to the Big Australia crew it is clearly beyond debate that what the world needs now is a much much bigger Australia with a far greater ability to project power and influence across the globe via our backpacker armies so “struth” let’s stop mucking around, try some honesty and get on with it.

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Categories: Macrobusiness

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