The COVID-19 pandemic has shone the most intense of spotlights on the weaknesses in our societies including: the lack of cohesion and increase in racism, inequality in opportunity leading to lower living standards which results in far greater impacts especially on exploited minorities and temporary workers, and inadequate care for the elderly in part due to greater dependence on institutional care as double fulltime income families struggle to meet their aspirations.
Before the COVID-19 pandemic began to rewrite economic histories for countries, Australia was basking in the glow of a world record run of economic growth. Treasurer after treasurer for the last decade and half returned from overseas gatherings of international finance ministers continually telling us that we were the envy of the world.
At home, however, there was an increasing feeling, especially amongst young Australians, that the prosperity was not being shared equally. That the previous generations, of landlords and share investors, had had the better of things. Worse still, for a chance of attaining their level of prosperity the younger generations had to commit to a life of vulnerable debt servitude, or give up on the ideas of attaining the trappings of the Aussie middle class, such as home ownership, if their parents were not in the position to assist them. Of course the persistence of this aspiration allowed the previous generations to continue to experience their good fortune by keeping aloft asset prices. However, even that chance of parental assistance at reaching the middle class was under attack with some parents indulging in the tongue-in-cheek Baby Boomer SKI passion – spending the kids inheritance.
Such was the passion resulting from these intergenerational tensions that a plate of smashed avocado become emblematic for all that was wrong with an insufficiently aspirational and\or hardworking young generation, according to many senior Australians.
Middle-aged Australian families that had not purchased property before the new millennium were increasingly being squeezed by rampaging rents.
Of course the property bubble was kicked off in large part by huge incentives for Australians to speculate on house prices, not invest because housing supply was always tightly managed to keep the bubble from bursting. Finally after years of increasing distortions (e.g. First Home Owners Boost during the GFC to keep house prices high) in the most recent Federal election Australians had a real choice to take away these housing and share market distortions (i.e. franking credit reimbursement). Australians declined that opportunity, and in many ways I believe that is a reflection of many young Australians’ compassion for their parents and grandparents leading them to take “their side” while not fully understanding the intergeneration inequity that such measures would have addressed.
While the young generations are castigated by many senior Australians for being selfish in seeking instant gratification, as exemplified by the smashed avo “debate”, research shows that younger generations are generous with their time through volunteering and definitely are community-minded.
It has been my view for some time that the situation is actually the inverse – it is Baby Boomer Australians who definitely have had the best of conditions – far more favourable than their parents who endured wartime and post-war frugality to provide for their growing families and who never achieved near the comparative wealth of their children – and still with such powerful electoral presence to repel attempts to lessen perks which they have enjoyed for most of their adult lives and which prevent a fair go for those younger Australians who at the same time subsidise all or some medical costs for seniors as well as fund other Government functions and pensions even for the modestly wealthy, while wealthy Australian retirees live from massively tax advantaged savings.
Now COVID-19 is exposing those inter-generational issues in an extreme manner that few have yet considered.
Young people have progressively been forced to accept that they will not have the same opportunities to acquire the same level of wealth as previous generations have done, through no fault of their own but due to the reality of politics where the greater number of votes (and of political donations) exist amongst the owning class, and this is exemplified by homeownership.
Those experiencing the greatest negative economic impacts in the early stages of the COVID-19 pandemic are the young working in the low-paid customer facing roles providing non-essential services. This will turn around somewhat because the longer the pandemic goes the greater the need for businesses to cut more deeply, and those older Australians made redundant will find it increasingly difficult to find another job. Up to this point in time, however, it is well understood that it is young Australians that have suffered the greatest economic hardship.
The Federal Government, especially, has wanted to pretend that it is possible to keep the national economy ticking away in some fashion by following a suppression strategy. Much of that is aimed at ensuring asset prices do not fall sharply, especially our housing markets which have long been Australia’s true economic vulnerability.
If house prices fell the older owning class would be worst affected economically, while young Australians have the most to gain by a fall in the price of assets because over their life time the opportunity to buy a home for perhaps half of the peak price would place them ahead of where they would be otherwise. That financial advantage would be so significant as to easily outweigh the negative financial impact of spending perhaps a year or two unemployed during a very serious recession or even depression.
For a long time I considered a buyer’s strike a reasonable choice for young Australians to address the intergenerational inequity that our political system has been unable to address.
Now it seems possible if not likely the pandemic will force it.
My main advice to young Australians would be that the best investment that you can make is your own health. From very early in the pandemic, well before such stories become common, I was warning through my posts that nobody should consider for a moment that all of the ways that the novel coronavirus can impact our health were understood. We are learning more about these impacts as time goes on, including an understanding that young people can fall seriously ill and die from COVID-19, and that even mild infections can cause changes within the brain. Long term impacts from infection can not be understood until that time has passed.
While many young people have come to think of themselves as invincible in this pandemic, there could be serious long term consequences to them developing even mild infection.
So I see our Governments’ response to the current crisis to be similar to previous crises: work expeditiously to get things back to “normal” as soon as possible, thus protecting asset prices which various Governments have worked hard at building and protecting over decades.
The people who are meant to save the economy from collapse are essentially the same: the young. In the GFC young Australians, those with the least life and investing experience, were bribed to enter the housing market and keep prices aloft by an increased cash grant which quickly was added to the price of the home in any case so that they got no net benefit but were left with a lifetime of vulnerable debt servitude.
In the COVID-19 pandemic young people, already economically vulnerable, are being convinced that they have the most to gain by the opening up of the economy and especially of the low-paid customer-facing service jobs. These are the jobs that can not be done remotely, and thus entail a significantly greater risk of contracting COVID-19. Note also that early discussions around herd immunity inferred that it was the young and healthy, the school children through to the pre-forties, who would have had the bulk “responsibility” for developing the infection to protect the vulnerable within the herd. (And it is here that you understand why our Federal Government fought so hard to ensure that schools remained open.)
As we have learned in Melbourne like elsewhere, older Australians are clearly more at risk of death from COVID-19, so senior Australians have the most to lose out of economic activity being prioritised over minimising loss of life. If economic impacts result in a fall in asset prices they will also lose, but common sense says that the majority would prefer the former option because wealth is of no use after death.
Yet it is the young who have the majority of their life to live with any long term consequences from COVID-19 infection. And it is young people who are most disadvantaged by our historically very high housing prices which are more likely to fall the longer and more deeply the economy is impacted.
So young people are being called on to got out and work to minimise impacts on the Australian economy, and risk their lives and their long term health, and the consequence of their bravery will be that the more successful they are in doing that the more out of reach will remain home ownership and long term financial security, especially if those long term health affects turn out to be debilitating and thus impact their lifetime earning potential.
I realise that this discussion leaves out an important group – the recent buyers, of which I would include myself. In a bubble, the most impacted are always the last buyers before the collapse. Anybody buying homes in Australia in the last 10 years in the financial expectation that the experience of the previous decades will be repeated was speculating as the fundamentals long ago ceased to stack up. At best an analysis of renting versus buying based on the current lower bound interest rates may suggest fair value in some areas of Australia, but that is not a basis for price increases going forward, and on a long term basis Australian house prices remain significantly overpriced. While I do not expect interest rates to increase appreciably for a long time in Australia, and have long held that view, whenever an asset class is over-owned by speculators there is the potential for price declines as those speculators realise their error. To those who bought understanding this dynamic, but rather made a discretionary spend to live in and\or raise a family in their own home, then these factors are of little significance. For such people the issue remains the same – maintaining a roof over one’s head – whether that be a rented roof or one to which a bank holds the mortgage.
That is the crux of intergenerational inequity in the COVID-19 era and the stakeholders in that situation are largely passive and being led by the political class. In the second part I will concentrate more on the closely related tension between business and workers, and here stakeholders are for more active and engaged in politics lobbying for the Government action that supports their aims.
To discuss the tension between business and workers we really need to strip back this issue to economic impacts versus human impacts (i.e. loss of lives) in the COVID-19 pandemic, a topic that is a constant background of my writing at MacroEdgo.
At the outset, it is very important to spell out that by human impacts I mean loss of life and all that entails: a life cut shorter than it otherwise would have been and the loss to that individual and those who knew and loved them.
It is equally important to accept that this discussion must be held in the context of our values – the term du jour – and especially our contemporary societies’ relationships with wealth and money.
Here it is important to draw a distinction as money is one form of numerical representation of wealth. In reality wealth is just a measure of the resources at your disposal to do things while you are on Earth and after (by your benefactors).
Why is it important to make these distinctions?
Society’s relationship with wealth will be a major deciding factor in where the balance is struck: in a society where wealth is more highly valued in relation to human life, then greater loss of life will be tolerated by citizens to lessen economic impacts, and vice versa.
Of course the general wealth of the country is important. Obviously a poor country can endure far less disruption to its economy because it has far less means to assist the vulnerable who will likely need to work to prevent starvation.
So the COVID-19 pandemic, as experienced in developed countries that have the resources which provide the opportunity to decide to respond more aggressively to minimise loss of life than developing countries, really is one of those rare moments in time where citizens are needing to decide where they fit on that continuum, i.e. what are our values.
The degree to which politicians are prepared to meet those society-wide values, even if it affects their own political standing amongst historical supporter bases including powerful financial donors, will decide their political fate.
I am not going to distil this issue down to numerical representations of national wealth in terms of dollars and cents, and GDP, etc. While I enjoy reading and analysing financial and economic data, and I do agree that it must necessarily feature in decision-making, it sometimes leads to the point being missed by many and it alienates (or repulses) many others.
What we are talking about is lives: ours and of everybody we care about.
I agree that greater human impacts will affect economy (e.g. loss of valuable human capital and productivity, reduced subsets of consumers, and impacts on confidence due to fear of infection and death) and vice versa (e.g. increased suicide due to economic impacts). However, I must admit that, even though I am a professionally-trained research scientist and highly analytical in nature, I agree with those who consider the reduction of human impacts down to numbers, whether that be death tolls or dollars and cents, to be distasteful.
As such I would not link to any report that does so, unless, of course, it favoured the argument I am making – such as here (yes, tongue in cheek).
The real purpose of this post is to put as plainly as possible the qualitative assessment of the overall risks that the COVID-19 pandemic is forcing on all Australians, and I want to highlight what are the factors, as I see them, that different segments of society are choosing to elevate in importance in their own decision-making.
In the first part I discussed the intergenerational issues which should be more widely discussed in these terms, but are not because to do so would require an admission that all politicians and senior financial bureaucrats were complicit in creating and perpetuating an enormous intergenerational inequity on young Australians.
This second aspect is being discussed, but it is only being discussed tangentially and in faux terms such as a grieving for every “livelihood” without recognition that in all reality that what is being discussed is a job that barely provides a living, and certainly not a living that similar level jobs in previous generations provided especially in comparison to what workers aspire(d) to do with that livelihood (such as buy a family home).
That is because continual weakening of workers’ rights, in the name of workplace flexibility and pseudo-innovation (which essentially leads to the replacement of an already existing industry, powered by workers on more tenuous conditions), have allowed the owning class (i.e. the wealthy) to increase their wealth by keeping an increasingly greater share of profits over the last 3 decades. This is a well understood phenomenon in the English-speaking world.
So we entered the COVID-19 pandemic with Australian workers more precarious than they were decades earlier, where social safety networks have also been eroded and widely considered unable to support a respectable developed country standard of living, and where affordable housing is a real problem for many which has led to many vulnerable people living densely and\or in conditions below what many in the developed world would consider adequate.
On the other hand, our elite have continued to fete the American economic model, falling under the same malaise of mistaking greed for a necessary ingredient rather than the deleterious byproduct it is.
This explanation of the current situation, together with the information in Part I, explains the workers’ risks.
For the business elites – the business owners and executives – the risk analysis is altogether different.
The business elites gain very little benefit out of closing their business to guard against the risks to employees other than at a personal level in knowing that they have behaved morally and conscionably. However, in doing so they risk a severe financial setback to their business which, especially for medium or small businesses, may be devastating. Small or medium businesses owners may lose their business, and consequently their aspirations for wealth accumulation and business success will suffer a serious blow.
Business executives may miss out on attractive incentives awards, such as bonuses and stock\share options, for not reaching operational milestones because businesses were closed to protect employees and reduce transmission of COVID-19.
No doubt the business elites are people, also, no less susceptible to infection by the novel coronavirus, even if their wealth has afforded them a greater level of underlying health than the wider populations, and will ensure that their treatment will be gold standard should they fall seriously ill. Moreover, they are also members of families, with children, and parents, and brothers and sisters, and extended families whom they love and who they hope will not be infected or succumb to severe COVID-19 disease.
The business elites, however, unlike the workers, have done very well thank you very much out of the way that the system has developed over the last 3 or 4 decades and in order for maximum preservation of that system and their advantage they want things to get back as close as possible as soon as possible.
The business elites need for people to retain as much as possible of their spending habits and belief systems around consumer and societal status aspirations – that is why there is an emphasis on opening up the entire economy not just the genuinely essential services.
It is already clearly understood that it is the people in lower socio-economic circumstances, especially the minorities, who are doing the jobs that can not be done remotely and who, to remain employed, must accept greater risk of being infected and ultimately of dying with COVID-19.
At the crescendo of emotion over the murder of George Floyd and the subsequent Black Lives Matter protests, a video by Kimberley Jones gained a great deal of attention for its brutal honesty. Kimberley explained for white people, many of whom may have been shocked by it, why black and other minority Americans were so willing to destroy property.
It boiled down to one thing and one thing only – after 400 years of toil and building wealth for others, they owned nothing themselves.
They did not respect that property because to them it was a symbol of a system that failed them by being biased and prejudiced against them for four centuries! And they knew it would continue to fail them and their descendants if nothing changed.
They had nothing to lose.
Again in the COVID-19 pandemic it is the business elite – the owners – who have the most to lose.
In earlier writing I spelt out that the advantage that those arguing for rapid and complete reopening of economies have is that the families that will ultimately suffer loss because of that decision do not yet know it. If they did know that they would be affected, surely many more would fight harder for measures to minimise loss of life, and be prepared to suffer greater economic hardship for the chance to save their loved-one’s life.
Right now throughout Australia measures to protect human life are popular, and Premiers of states that have experienced periods of zero detected community transmission and\or are experiencing very low levels of community transmission are very supportive of the state border closures.
At the same time, business elites are placing maximum pressure on the Federal conservative Government to remove measures which keep people safe but which hinder the operation and viability of their businesses, and currently they especially want PM Morrison to politically out-maneuver State Governments so that borders are re-opened.
If one is to listen to these business elites justifying why Australia must loosen restrictions, and thus live with greater risk and subsequently greater spread and death with COVID-19, it will almost certainly be said that Australia simply cannot afford these impediments to business functioning as it did prior to the pandemic.
When Australians hear such a comment, they might want to begin to consider why that might be so – why Australia apparently cannot afford to protect it’s citizens in this pandemic, and especially it’s most vulnerable now, after having experienced almost 30 years of continuous economic growth. They might want to consider in what ways they benefitted from all of that growth, and whether it might actually be the case that the majority of spoils were shared between only a small subset of Australians. As it becomes clear that high house prices are not a symbol of permanent wealth but are ephemeral, while the debt is real and lasting, they may wish to consider who really prospered from the bubble. They might wonder what value might have been gained from Governments thinking ahead and stashing away a lot of the windfall from a once in century resources boom into a sovereign wealth fund to be used at a time of need, and then recall what powerful lobby it was that prevented the Rudd Government from doing it.
Australians might then want to consider whether it is that same subset of Australians that are now saying that Australia cannot afford to do everything possible to minimise loss of life in our lucky country!
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© Copyright Brett Edgerton 2020