Conversation starter

Questions on super, mining, housing, innovation and investment from the Twitter armchair

One of my Twitter followers, Madhava Jay, sent me a rant this morning about the Australian economy.

I noticed many lines of thinking about potential links between superannuation, housing, investment and innovation, and ways we might try to get better economic outcomes over the long term.

So as a conversation starter, I have reposted it below the fold.

Please share your own thoughts and ideas in the comments, especially about big picture questions about the Australian economy.

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Madhava’s comments

I was thinking about this for a bit and forgive my ignorance of economics but, from my Twitter armchair, it feels like there’s some interplay between Australia’s super system, its over-dependence on Real Estate economics and its lack of innovative exports.

I have heard that investment outside of real estate and mining is extremely low in Australia and the concept of entrepreneurialism is largely nonexistent compared with the USA and Europe. I don’t know if that is both true and is a real problem, but if one was to assume that the global dominance of venture capitalist-funded innovation and export from places like the US is a good thing, economically speaking, then it would be a problem, or at least a massive point of potential improvement.

Why are people so disinterested in investing in anything other than housing and mining? I can only assume that the odds are stacked in their favour too much.

But if that’s true perhaps that robs us of a bigger story of real value creation which would easily eclipse the fearmongered losses of a few landlords.

Why does Australia have so many variable rate short-term mortgages, compared with other countries?

I don't fully understand that, but from what I gather there seems to be some need to utilise variable interest rates to drive spending up and down, as opposed to other mechanisms.

Could it be that things such as forced superannuation worsens the need to over-utilize interest rates to control our economy? After all surely 10% super is much higher than 10% of disposable income after rents. Citizens are invested in the market, but they don’t materialize those gains until they retire, while the market chases their bank balance along the way, crushing their disposable income.

It seems as though perhaps we can temporarily make some of them appear richer by giving them access to cheap debt in the form of low-interest rates and get them to go buy up real estate and mooch that wealth from the next generation in what appears to be a pretty basic Ponzi scheme with the expectation their profits trickle down. Do landlords really invest all their profits back into the economy or do they go spend them elsewhere on holidays in Greece?

Do the trillions of dollars of real estate actually produce any net output or does it just keep Australians from investing in anything more productive which might actually be exported instead of just cannibalizing our own GDP in the form of tax breaks to collect rents and squeeze disposable income, potentially to simply stabilise employment figures between our almost tachycardiac like three-year election terms?

I imagine the administration of 20+ million superannuation accounts in what seems more like a forced commercial stock brokerage fragmented over 500 different brokers, is hugely wasteful and would surely be better as a sovereign wealth fund that can act on a scale beyond independent groups of 20k and not be limited to short term time horizons. Perhaps freeing Australia from the "Real Estate Addiction" is much bigger than simply housing people affordably.

Perhaps it’s the only way to actually unlock a real economy that produces valuable exports and drives innovation rather than one which uses the public purse to perpetually fund unnecessary home renovations in a sort of "Bunnings Republic".

I don't pretend to know how one can best communicate these heretical concepts let alone ensure the vast majority of "financially dependent" mortgage holders out there don't "believe" they will somehow lose out should this musical mortgages game be changed. Maybe that is in fact the point, keeping a lot of people busy transacting without creating real value, is what an economy must do.

But it doesn't seem to make any sense to me. Perhaps the promise of something like HouseMate is not simply to house people, but to usher in a whole new level of productivity and innovation by putting down the "shack pipe".