Growing up, my parents instilled into me that in order to stay informed; one had to read the newspaper daily. At home, we received the Phoenix Gazette Monday through Saturday and the Arizona Republic on Sunday. I started out reading the comics, but eventually was reading it in its entirety. I left home and read the Colorado Springs Telegraph. The Chicago Tribune. The Los Angeles Times. The San Jose Mercury Sun. The Seattle Post-Intelligencer. I never gave much thought to any of these publications. They all seemed perfectly adequate. Average. Nothing special.
Just over a year ago, I moved to Australia. I contend that when comparing these two countries, on most subjects there is no better or worse, there is only different. I do, however, contend that on the subject of journalism, the United States is superior. Far superior. Orders of magnitude superior.
The most available form of journalism is brought to the people of Australia through the media conglomerate Fairfax. In Melbourne, “The Age”, a division of Fairfax, is the most widely read newspaper. It is the only newspaper, in all of my travels, which can actually make someone dumber for having read it.
“The Age”, how do I loathe thee, let me count the ways… First, as a shitty writer, I am uniquely qualified to call out shitty writing and The Age is indeed atrocious. I never received a grade higher than a “B” in high school English, and yet… I distinctly remember being taught that a standard five paragraph essay has the following structure:
- Introduction
- Main point
- Main point
- Main point
- Conclusion
Alternatively, it may have this form:
- Introduction
- Thesis
- Anti-thesis
- Rebuttal to the anti-thesis
- Conclusion
That’s pretty much it. All short writing is based off of these two models. With that in mind, I submit into evidence the following article:
http://www.smh.com.au/business/home-of-the-business-bogans-20120312-1utrb.html
I think the author is trying to say that it is rude to recline your seat when on a short flight from Melbourne to Sydney. As a 6’4” man, I sort of agree, but I find the article so poorly written that I am not sure what his point is or what I am supposed to do about it. This is not an isolated incident; just about every article is this bad.
Not only is the writing horrible, but the analysis is shockingly bad. It seems like the main (and only) tool for economic analysis is linear extrapolation. There is no talk of regression analysis or R-squared coefficients, no, some “journalist” simply looks at a few data points and then draws a line that more or less fits these few points and calls it a day. I would like to submit the following article into evidence:
http://www.smh.com.au/business/us150-a-prospect-as-dollar-dazzles-20110727-1hzd6.html
This article was written just about a year ago predicting the Australian dollar, which had just broken through parity, would be at $1.50 USD. The evidence? Linear extrapolation! The AUD has been going up, so it must continue to go up. Here we are, a year later, and the Australian Dollar is worth more or less the same as an American dollar. The prediction of being 50% more valuable is nowhere close to coming true.
In the United States, we have mainstream journalism, which I have recently learned to appreciate. As much as people complain that there is a “liberal bias”, I find that I can learn a decent amount about both sides of an argument from the mainstream media. Outside of the mainstream media, there are a bunch of crackpot conspiracy theories that obsess over Area 51, the Kennedy assassination, and Big Foot. There is very little reason to chase information outside the mainstream. In Australia, however… it is the media outside the mainstream that is worth listening to. The conversations and counterbalance to the mainstream that can be found at sites such as http://www.macrobusiness.com.au are priceless compared to the drivel available in The Age.
It is at this point, I would like to remind you, dear reader, that Fairfax media owns Domain – a site dedicated to buying and selling real estate which makes most of its revenue from real estate agents. Within The Age, there is a section dedicated to Domain which, over the course of the last year, has published countless articles that state:
Property values double every seven to ten years…
A more responsible way of writing this sentence would be:
Over the last ten years, property values have doubled. Plenty of property doomsayers have claimed that this is not sustainable, but property prices have continued to rise. Clearly, it cannot go on forever, but now might be a good time to buy if you can handle the volatility and risk…
Sadly, my rephrasing of the “property values double ever seven to years” is nowhere to be seen. This seven to ten years lie is told over and over and over again, like a piece of Joseph Goebbel’s propaganda, to the point where it is no longer questioned. And yet, it defies common sense. If something doubles every seven to ten years, it is experiencing compound growth of 7% - 10% annually. Since people will only buy what they can afford, that would mean that to support this level of growth, then the average person’s wage must be increasing 7% - 10% annually as well. Herein lies the problem as wage growth has been well less than half of that. Logically, this oft sited seven to ten years figure is complete crap. Except the analysis I just provided was not done through linear extrapolation and therefor will never be found in The Age.
No, “articles” in Domain on The Age like to say things like:
There is a housing shortage (except there isn’t - http://www.moneymorning.com.au/20120706/the-australian-housing-shortage-that-never-existed.html)
There is no Australian subprime market (except there is - http://goldnews.bullionvault.com/australia-subprime-housing-bubble-061320125)
Well, even if the housing bubble (which doesn’t exist) pops, mining will save us! (it won’t)
In fact, it was articles like this that first led me to move to Australia:
http://www.theage.com.au/business/experts-see-rosy-future-20120706-21mn5.html
A year ago, I thought that the US was in a permanent state of decline. Meanwhile, on the other side of the Pacific Ocean was an English speaking country that had managed to increase its GDP while the US and the European Union had slipped into a recession or even depression. This nation of geniuses had somehow managed to prosper as everything fell apart for the States. Of course, this was before I knew that these articles were nothing more than propaganda pieces to prop up the Ponzi scheme that is the housing/consumer debt bubble in Australia and/or drivel written by and for the feeble minded. The Age, in addition to repeating the mantra about unsustainable returns in real estate, likes to talk about the rosy future for Australia due to the “mining boom”.
I am going to take a slight detour here and talk about what a boom is. I have been accused in the past of being an Apple fan boy. Never have I been accused of being a Microsoft fan boy, so prepare to be shocked as I heap praise upon Microsoft for its contribution to the local Seattle economy and the economy of the United States as a whole.
I have written before that I missed the “Microsoft boom” in Seattle. That is not entirely true. In 1987, Microsoft became a publicly traded company. The process minted a small handful of BILLIONARES (with a B) and many, many millionaires. The company grew from a few hundred, to a few thousand, to tens of thousands of employees in the Seattle area. For the last thirty years, Microsoft has paid its employees above average wages which, in turn, were spent in the local community. The areas surrounding Microsoft corporate headquarters in Redmond, Washington expanded. Houses were built. Roads were built. Schools were built. All of this building led to higher levels of employment. With more people employed, more money was spent in the local area. With more money available, more restaurants were built. More retailers. More everything in a “virtuous cycle”.
Microsoft recruited software engineers from all over the country to relocate and work in the Seattle area. In general, they tended to hire smart, hardworking folks. With a base of talented software engineers, other companies setup satellite offices in the area. Google has an office in Kirkland. Facebook has an office in downtown Seattle. Amazon is located just across the 520 bridge. Seattle might not be the tech center that is Silicon Valley, but it is starting to be a reasonable alternative. Would all of these companies be in Seattle if it were not for Microsoft? Probably not.
Without question, Microsoft has had a positive influence on the local Seattle economy. However, Microsoft has had an enormous impact on the economy of the United States as a whole. Computer maker HP makes personal computers in California. Dell and Compaq (before its acquisition by HP) make computers in Texas. Systems Integrators from all over the country perform high value skilled labor installing and designing systems that run on Microsoft technology.
Further, the software made in Redmond, Washington is exported throughout the world. Roughly 60% of all revenues for Microsoft come from outside the United States. This “tech boom” that has been going for decades shows absolutely no signs of slowing down and has made the United States a stronger country for it.
Let’s contrast the tech boom I described with the “mining boom” that is highly touted in Australia. Dirt in Western Australia is dug up, placed on boats, and shipped to China. A very small handful of Australians are employed to dig and/or ship the dirt. The money from the dirt finds its way to Gina Reinhardt, other mining moguls, and the few people engaged in dirt digging or shipping. Once the dirt leaves the country, there is no value added work performed by Australians on the dirt. What money that is made from the dirt stays in Perth, Western Australia. All of this is good for Perth but doesn’t matter much to the 95% of the population not in Perth or employed by mining.
What’s more, as a percentage of GDP, mining comes in at roughly 8.3% (see table below). Even if mining were booming, that boom is local to Western Australia, and is dwarfed by the percentage of GDP that is taken up by construction, retail trade, finance and insurance, property and business services, and ownership of dwellings (representing 43% of the GDP). All of these industries will be decimated by the inevitable downturn in residential house prices. So according to the brilliant economists forecasting continued growth, an industry that makes up 8% of the economy, is localized to Western Australia, and has not made a difference to the rest of the country can keep the country afloat as industries that make up 43% of the economy goes in the shitter?
| 2007-08 | ||
| Agriculture, forestry and fishing |
25085
|
2.51%
|
| Mining |
82650
|
8.26%
|
| Manufacturing |
106776
|
10.67%
|
| Electricity, gas and water supply |
21904
|
2.19%
|
| Construction |
77101
|
7.71%
|
| Wholesale trade |
49013
|
4.90%
|
| Retail trade |
58932
|
5.89%
|
| Accomodation, cafes and restaurants |
20529
|
2.05%
|
| Transport and storage |
51294
|
5.13%
|
| Communication services |
26377
|
2.64%
|
| Finance and insurance |
80270
|
8.02%
|
| Property and business services |
131907
|
13.19%
|
| Government administration and defense |
40708
|
4.07%
|
| Education |
43681
|
4.37%
|
| Health and community services |
64758
|
6.47%
|
| Cultural and recreational services |
16120
|
1.61%
|
| Personal and other services |
19848
|
1.98%
|
| Ownership of dwellings |
83423
|
8.34%
|
Source: (http://abs.gov.au/AUSSTATS/abs@.nsf/Lookup/1301.0Chapter15032009%E2%80%9310, calculations mine)
Once again, the preferred tool of economic analysis has been linear extrapolation. The Australian economy has been booming but it has not been powered by anything sustainable or even something transient such as a mining boom. The continued growth of Australia’s GDP in the face of declines in the United States and Europe can be explained by something far more ordinary. It has not been a mining boom powering the growth, but an ordinary credit bubble as Australians have racked up private debt to GDP levels roughly equal to Ireland before their bubble popped(bonus irony points here for my source being The Age, but every once in a while they get something right - http://m.theage.com.au/business/property/private-debt-hits-housing-costs-20110731-1i6bj.html)
All good things come to an end and this credit bubble is no different than any other credit bubble. See the United States, the United Kingdom, Ireland, or Spain. Australians are no smarter than their counterparts in the US. In fact, their stubborn insistence on not learning from our example and saying, “But Australia is different!” makes them quite a bit dumber. The Australian government that patted itself on the back for avoiding the American fate in 2008 did nothing more than pump air into an already inflated bubble delaying the inevitable. The average Australian receiving their information from The Age called this act of lunacy brilliance never daring to challenge any of the assumptions in the data.
Where Australia has referred to itself as the “Lucky Country”, I think it might be, paradoxically, the United States that is lucky. Yes the recession that hit in 2008 was devastating. Lots of people were out of work, fortunes were wiped out, and it will remain a scar on our national psyche (until the next bubble is formed). However, we have taken our medicine and began the painful process of what economists call deleveraging. Our housing is now rated by The Economist magazine as “affordable”. We can now go about doing what we do best. Rebuilding, innovating, and inventing. Meanwhile, Australia has yet to grasp that its entire economy has been based on lies and over enthusiastic prognosticating. Australia has to find something to do to sustain its economy besides digging up dirt and selling each other overpriced houses.
The first step in building a better economy is to reject the simplistic extrapolations offered up by the “journalists” here. There are much better sources from macrobusiness, Steven Keen’s debt deflation, or Prosper Australia. The Age is not doing anyone any favors by publishing puff pieces written by realtors attempting to squeeze the last dollar out of the Australian consumer. Australia, like every other country that binged on debt, must face its day of reckoning. Until this epiphany reaches the masses; the three greatest lies currently told in Australia are the check is in the mail, I will start on that as soon as possible, and the mining boom will save us.
No comments:
Post a Comment