The ABC headline reads “Westpac chief economist predicts ‘about a year’ before we start seeing rate cuts”
In the clip, Luci Ellis tells the presenters that within a year or two, after falls of less than 10%, but that after that, house prices will still be higher than they were a few years ago. Whether she means another ten percent from now or from the peak which is already behind us, is not made clear, as it usually isn’t, giving the speakers more wiggle room later.
She points out we’ve had four corrections in the last decade without it ultimately reversing the trend. Nothing much to see here people.
This is how mainstream punditry and economics is framing the current housing downturn. What they are missing is a historical perspective that stretches back past the third-way neoliberal revolutions in political economy of the 90s, before which, nothing, apparently, ever happened, least of all an entire century when Sydney house prices fluctuated between 4 and 8 times the average annual wage. They currently sit at 20x-ish.
But the worst of the segment is not from her, it’s the loaded question, put to her by one of the hosts who asks “When do you expect that the RBA will start to move and start to take a few percentage points off?”
This question is a crime against critical thinking.
The current cash rate is 4.35%. “a few” percentage points, meaning 3 or 4, would take it back to 1.35% or 0.35%.
This is worse than magic pudding thinking, this is junky thinking. As with an addict, time horizons shrink, there is no past, there is no future, there is only the urgent need for the next fix.
Why should they ever cut again? Why shouldn’t rates keep climbing, back to the 17.5% it was when the RBA’s records begin? How do they presume to know what the future holds, or what the government’s response will be?
Similarly the presenter, James Glenday, who unlike many Australian “journalists”, allegedly works for a public broadcaster, not a real estate conglomerate, asks about an obviously and inevitable “bottom” which the economist should predict before house price growth returns, as an inevitable and natural fact of life, going back to the dawn of time when Paul Keating and Tony Blair touched butts at a conference in Davos.
I probably shouldn’t even complain about people only remembering back as far as the 90s. Often enough, the story, especially around interest rates, inflation, and house prices, the story begins with the Pandemic. Worst Falls Since Pandemic. etc. As if everything was normal before then.
In May of 2019 the RBA’s target interest rate was at an all time low of 1.5%. By October, before the Pandemic was a thing at all, it had been cut multiple times, to a new all time low of 0.75. THat’s a 50% reduction in the cost of credit over six months, from an economic establishment that was desperate to re-inflate a debt bubble that had been growing since the 90s, when wages stopped tracking with productivity. Wages that don’t keep up with productivity, almost by definition, are deflationary. Prices fall to meet the available supply of consumer spending money. This mechanism, most famously articulated by Marx, causes the repeating crises of capitalism, such as the Great Depression.
This discredited the “classical” economics of the time, leading to an interventionist Keynesian era often described as “post war”, but really beginning before that in response to this collapse in demand from the worker-consumer in the policies of FDR and others. This long period of heavy interventionism, during which Eisenhower oversaw a top income tax rate of over 90% is well known, but never discussed.
It ended in the 70s or 80s, as the boomers came to power, and settled in for a long slow feast on the riches previous generations had bestowed to the future. The excuse was a sustained inflation spike. This was probably actually more so the result of the long Vietnam war and the various disruptions to oil flows (the Arab-Israeli wars in ’67 and ’73, and the Iranian revolution of ’79), but strong labour unions and wage growth, and high levels of government investment, which put money in the hands of ordinary people, were and are, almost by definition, also inflationary. And so the “Chicago boys” had their moment, and the mixed-market interventionist model, which had fundamentally transformed the developed world into the one we fondly remember from the late twentieth century, and barely recognise today, was thrown onto the trash-heap, apparently forever.
The interest rate cuts began as medicine, when the economy leaned towards a deflation, because wages weren’t sufficient, a rate cut treated the symptoms. Not the cause.
Soon it became an all consuming addiction, with the scum who rule us, and their lackeys in the newsrooms around the world, calling -heedless of any consequence- for another hit.
These people are not trying to predict a reality, they are trying to create one. As they, or the people who run them, know on some level, the future is easier to create than it is to predict. The future they want to predict is one in which wages and government spending stay low, redistribution, generally, with its inflationary push, is to be avoided. THEN WE CAN HAVE OUR RATE CUTS, RIGHT?
This would be bad enough, but it gets worse, with progressive pundits and politicians, in Australia most notably the greens, batting hard for rate cuts. This could be because they think high interest rates are nasty, and low interest rates are nice. Or because, despite their talk of housing affordability, they all own investment properties.
But none of that really matters, because the neoliberal program has run its course. Once you’re a pickle, you don’t get to go back to being a cucumber. The debt market is absolutely, generationally, saturated, and cannot be restarted. History will not rewind and give you parasites another hard built welfare state to raid. There are no chumps left for the bottom of your ponzi.
Whatever comes next won’t be more of the same.
