If it seems like 10 years of hype about the Howard government’s economic ‘success’ has very little to show for it. That’s because it has. It is a victory of propaganda over substance

In infrastructure terms the current wonder boom hasn’t coincided with an era of nation-building, quite the opposite. Nor has there been any great revolution in industry or expansion in productive capacity.
With the exception of mining of course, a low-employment, low value-added industry where demand is dependent on the success of other economies & supply depletes finite resources.

Economics correspondents and the former treasurer have told us that the mining sector’s contribution has been overstated. The ‘doubling’ of household wealth that the PM used to boast of, has come by way of a speculative housing boom that has contributed little to construction & left us paying up to 3 times as much for assets that were already built.

Rather than create real prosperity the boom in established house prices has benefited some at the expense of others & created an unprecedented mountain of debt.

Landlords and speculators made huge windfall gains. Newcomers were stuck with prices that were 6 to 9 times average annual income (where previous generations paid half as much) signifying in effect, a redistribution of wealth from first & future homebuyers to existing property owners rather than a net increase in wealth.

Owner-occupiers received a mostly nominal increase in wealth as the value of their property rose in parallel with others. Some found an advantage in ‘trading-down’ but for the most part the increased equity merely enhanced their capacity to borrow & borrow they certainly have.

According to the Reserve bank, Australia’s household debt has more than tripled since the early nineties, reaching a level that is equivalent to 100% of GDP.

Rather than credit cards & struggling first-home buyers, it turns out that the rise in household debt:
“is mainly being driven by older, higher-income households that are trading up to higher quality or better located houses, buying investment properties and taking out margin loans to buy shares"

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In the same presentation the RBA also observed that:

“The primary effects of this borrowing were therefore on asset values, the most noticeable being the more than doubling in house prices”

http://www.rba.gov.au/Speeches/2007/sp_dg_250907.html

To some extent the non-productive nature of the asset –price boom is also reflected in financial markets where a lot of the growth has come from banks & other lenders (the debt boom), public infrastructure (monopoly profit) businesses run by the likes of Macquarie Bank as well as mergers & acquisitions which tend to represent a concentration of ownership rather than an expansion of productive capacity.

While the asset-price boom has generated growth, its main beneficiaries have been the asset owners & the more they own the greater the benefit.

Last July, national accounts figures revealed that company profits as a share of the economy reached a near record high as the proportion going to wages continued to fall.
Treasurer Costello’s counterclaim – that ‘real wages’ had nonetheless increased by an average 1.9% a year during his term - is of little consolation to the younger generations that have experienced a massive decline in living standards as rents & house prices outstripped wage growth.

While the flood of cheap imports that devastated the balance-of-trade have kept (CPI) inflation low, household debt levels have somewhat paradoxically ensured that inflation (or the effect it has on interest rates) has become the defining issue.
The banks that funded those debts sourced most of the funds overseas - another reason that Australia has the world’s 4th largest current account deficit in absolute terms.

Economic growth during the Howard era was based on borrowing, asset-price inflation, mining & imports. In historic terms the most outstanding features of this period have been an unprecedented generational wealth divide as well as phenomenal levels of household & foreign debt. None of which bodes well for the future.

That this has been interpreted as a success is primarily due to the influence of an asset-rich, mostly middle-aged demographic that has re-arranged the inter-generational flow of funds to their advantage.

Mr Smith

Thanks for that succinct overview Mr Smith (Adam?)

Propaganda over substance indeed.

Paul Keating put it well - listen to what he said here:

http://www.youtube.com/watch?v=SgUPvGN5mSo&feature=related