I’ve seen a few suggestions lately (eg. in the Fin) that Australians should envy the New Zealand economy’s performance. Here are a few charts to keep in mind when comparing the two countries.
One of the key economic policy battles in the first term of any government is to shape the public’s understanding of the previous government. Howard and Costello successfully associated the Keating and Hawke governments not with a massive program of economic liberalisation, but with “Beazley’s black hole,” a supposedly hidden fiscal deficit that was used to justify sharp spending cuts. The first Rudd government could and should have made more of Howard’s failure to make the most of the mining boom, squandering much of the benefit in unsustainable tax cuts, but they failed to ram this message home.
The other day I had a guest post from my friend Simon Mongey, featuring some interesting charts he made using ABS Confidentialised Unit Record File (CURF) data . He’s sent me another couple of interesting charts on housing, comparing 1986 data (dashed line) from the Income Distribution Survey with 2006 data (solid line) from the Housing Income and Expenditure Survey.
This first is this chart of homeownership rates by age cohort. You can see that homeownership rates have fallen for most age groups.
Mean Homeownership Rates: 1986 [dashed], 2006 [solid]
The second chart shows the home value to income ratio for homeowner households, in the upper half of the chart, and the owner income-renter income ratio, both by age.
Mean Housing Ratios: 1986 [dashed], 2006 [solid]
The trend in both cases is stark. Households’ housing wealth is now significantly greater, relative to income, than it was 20 years prior. It’s a fairly obvious observation, but it’s rare to see this ratio broken down by age.
In Simon’s words, the lower half of the graph shows “a quite staggering change. Home ownership in 2006 more clearly separates the rich and the poor in terms of income”.
Johan Norberg of the libertarian US think tank the Cato Institute has an op-ed in the Australian about the population debate. He sets up the usual dichotomy between endemic Government failure and the apparent perfection of markets.
The politicians who blame a crumbling infrastructure on the surprisingly large inflow of people must be surprised to find out that Woolworths is perfectly able to service a growing population, and that there is no lack of gas at the service station for a growing number of cars. The difference is that businesses react to price signals and adapt, because that is how they profit. And they never blame their consumers for too strong demand.
What could explain the ability for private companies like Woolworths to expand their operations to keep up with an expanding population at a better rate than Government? Simple: Woolworths is not afraid of debt. If a new outer-suburban subdivision opened up, Woolworths wouldn’t hesitate to borrow capital to build a new shop.
What would happen if an Australian state government (who, after all, are mostly responsible for service delivery and infrastructure) tried to borrow some money to build a new hospital, or a train station? The op-ed pages of the Australian would fill up with anti-Government screeds, accusing those governments of fiscal irresponsibility, of crowding out, of economic ignorance.
It’s the aversion to public debt that is at the core of the infrastructure and services crisis (to the extent there is one).