The Old One’s Incomplete!
Seriously folks, you should read this article by Andrew Boughton and Michael West. It has some really revealing bits about Karl Mark and Maynard Keynes. For a start I didn’t know Keynes was such an anti-semitic closet Nazi sympathiser. However, the bit that really got me is this:
Property is the economic bedrock, providing vital infrastructural support for virtually all economic activity, whether household, government or business. This infrastructure role is intimate. We physically live and operate within real structures.
The function of real property extends beyond the economic and into the social, and indeed structures are defined by economists as one of the three basic economic needs, the others being food and clothing. All other economic entities are naturally subordinate to these three.
Yet historically in economics, property has been treated as a productive resource, that is, productive agricultural land. Urban property has never been truly defined in economics, except by default as capital investment.
Why? It is many things to many people. Property resembles infrastructure, involving large amounts of capital, large-scale construction techniques, with large structures left at the end of day. It is an asset which can be traded, and like machinery, the structures depreciated.
The land on which a structure sits, and to a lesser extent the structure itself, is a reusable commodity which is not traded for consumption like other goods, but is permanently re-tradable. It is also fixed in place and cannot be imported or exported. Like finance, real estate is a facilitator of other economic activities – commercial, industrial and household. It is instrumental to being a consumer, trader or producer, but in itself produces nothing.
Ouch. I’ve been thinking a lot about this issue that property seems to contribute greatly to prices but we keep glossing over property values as an underlying issue in any economy.
It seems to me that cities with property bubbles and inflation have to go hand in hand. So while 5 of Australia’s top cities have crept up the unaffordable list in the last decade, I’ve strongly felt that the inflation couldn’t have been 3% as stated – year after year, solemn faced – by the previous Howard Government.It had to be so wrong, because it didn’t reflect the reality of my wallet during this time.
This last year, we’ve already found out just how the ABS cheats in its calculation of the inflation rate so that it always understates it.
One of the reasons the property bubble took place would be because the interest rates were set too low in relation to the real inflation actually that took place. By the same token, people’s real wages would have decreased during this time, so all in all this process has helped transfer wealth from the ordinary person to property development types. You know, the types that ran Macquarie Bank, and bankrolled all those horrible developments that you can’t afford… No wonder the wheels fell off.
It probably meant that there was a good decade and a half there, where even a half-wit could have walked away rich if they were a property developer because the field was severely tilted in favor of the guy speculating on property. Worse still there was even a subset of people who borrowed against their mortgages to play the share market in the name of diversification of asset classes. Well, I guess we all found out that they were all pinned to property values in the end. What a joke.
And now that everything has gone up in a flash of red light, the taxpyers are having to bail out the idiots who have been running this scheme. It’s a minor miracle people don’t take to the streets in anger. They should’ve been protesting about this stuff insetad of bloody APEC 18 months ago.