In this essay I distil down to a common sense level the interplay of Global population growth and climate change to explain the reality of what has been the impact of delaying both our progress towards global equality and innovative responses to climate change.

Just imagine for one moment that at the completion of World War II we truly heeded President Roosevelt’s lessons about the need for a united and compassionate humanity. 

Sure, regulation and architecture to improve the security of financial institutions – which remained robust until the lead up to speculative euphoria which caused the Great Recession (or Global Financial Crisis) – as well as other vital global institutions such as the United Nations, International Monetary Fund and World Bank – were created in the immediate aftermath of WWII.

However, the opportunity to genuinely make the world a fairer place by allowing (and supporting) all countries an opportunity to develop was squandered. 

In “As He Saw It” published in 1946, Elliot Roosevelt (a US military WWII officer who attended many important meetings with his father FDR who died soon after he delivered that 4th Presidential Inaugural speech and before the surrender of the Japanese) expressed his extreme disappointment with what occurred as the war came to an end and in that year immediately after his father’s passing.

In the second paragraph of the introduction to his book “As He Saw It”, after a long list of reasons for why he wrote and published his account of proceedings, Elliot Roosevelt says “all of the signs of growing disunity among the leading nations of the world, all of the broken promises, all the renascent power politics of the greedy and desperate imperialism were my spurs in this undertaking”. 

(His introduction is so powerful – I have posted it here and recommend all readers to at the least read this passage if not track down the whole work.)

Given what has occurred in the world since the 1970s, and especially now the attitude of President Trump, that is an interesting contrast, but that is the subject of a separate post which I have entitled “The Magic Sauce of American Economic Dynamism Was Not Greed“.

We know that when people are presented with opportunity for a better quality of life, unsurprisingly, they take that opportunity. This in itself leads to lower birthrates as people are occupied by career and professional development, as well as enjoying the trappings of having a disposable income. 

Equally important, the security of knowing that babies born into a more developed world have a far, far greater chance of surviving to continue family lines means that biologically people feel less urge to have larger families.

So it is a virtual certainty that if for the last 80 years all efforts were made to make the world a genuinely fair place, so that the degree of opportunity for a standard of life equal to anywhere on Earth was not determined by the geography in which you live, then the global population would be significantly less now than it is.

No doubt many will counter that a higher proportion of the global human population enjoying a higher standard of living would mean that average per person impacts on the environment would be greater such that environmental impacts and degradation might be even greater than where we are at right now. 

Of course that would depend both on what was that average global standard of living and the actual population level, as well as how much of the additional human capital unleashed would have been devoted to innovation to counteract those environmental impacts.

Now I realise that the climate deniers and hard-hearted right wingers will use this space to attack this analysis as unrealistic pipe dreams (as if a better world for all is never achievable). And I readily accept that the issues surrounding geopolitics and developmental sociology are extremely complicated and difficult to solve. 

However, as is clear in my essay “Let’s Wage War on Climate Change“, humanity has devoted significant resources – including human capital and human lives – to man-made crises throughout our shared history. Human ingenuity and toil can achieve amazing results when directed to a common and crucial cause. Nobody would suggest, I believe, that those sacrifices to save the world from oppression and tyranny were in vain.

So let us imagine for a moment what would have happened if humanity had worked together so that we lived in a (near) perfect meritocratic global community. Perhaps the global population, which really took off after WWII, might be half of its current level and be tapering off if not already in gentle decline.

As that figure shows, the reality of our actual population growth is quite different to this theoretical scenario, and several scenarios for future population growth developed by the United Nations are shown.

We still have a very unfair world with gross inequality in the standard of living and opportunity for a “decent life for all” (in Sir David Attenborough’s parlance from a speech he delivered in 2011 which is essentially identical  to this essay he published at around that time).

If everybody were to enjoy an equitable high standard of living now with the population that we have, without an astronomical surge in innovative technologies to reduce our impact, then most would agree that we would all be imperilled due to the extreme impacts on environment and climate change (again that is the thinking contained in Attenborough’s speech).

The truth is that global elites are already building into their thinking that what will be considered a “decent life” for those in Africa, throughout much of Asia, or South America, or on Pacific Islands, will remain to be VERY different to what is considered a “decent life” for those in the already developed countries.

That is the rub, those same elites are surreptitiously attempting to reduce population growth within those poor regions, all the while the biological impulse (from billions of years of evolution) of those very vulnerable people in those regions will increasingly be to boost their birthrates to increase the chances of survival of their family line.

When those poor people in those other regions become more and more aware of how they have been “hung out to dry” as climate change impacts grow more and more stark, and as they start to get more desperate as their growing populations are increasingly squeezed by diminishing resources due to climate change impacts, then the global tensions will grow to such an extent that containment will require heavier and heavier-handed military actions.

Essentially, it really will be a world where those nations powerful enough to guard their borders to preserve their natural endowments and what they have accumulated from the rest of the globe, as well as guard movements of resources between other “islands of prosperity”, will enjoy a “decent life” while those outside will enter some sort of Mad Max ultra-Darwinian state.

If that sounds like a world that you would enjoy living in, then go for it – live it up now and do not give a second thought to what lies ahead.

I cannot. We cannot go back and change what was and was not done 80 years ago.
But be in no doubt that we do have a choice of how we progress from here. 

Instead of continuing on this path we can recognise our folly immediately, admit to it, and move forward collectively. 

As Attenborough rightly said, climate change cannot be effectively and enduringly addressed while the global population continues to grow. But the only humane way to address this – not by trickery or coercion – is to allow all people the opportunity to have access to the same standard of living so that humans make the natural decision to have fewer children. As not all people that currently exist on the Earth can enjoy the highest standard of living enjoyed by some nations at present, there will need to be a play off between population and standard of living, meaning that those presently enjoying very high standards of living will need to accept that their standard of living will fall.

To facilitate a more inclusive humanity with equal opportunity for an equivalent standard of living will require a great degree of social cohesion which will require genuine political Leadership to harness the political capital that now exists to confront the climate change crisis and which is prepared for mutual sacrifice, and which stands up against xenophobia and it’s foot soldiers, the naïve, uninformed or precarious.

To give all people an equal opportunity to have an equal standard of living will require an enormous rethink of how globalisation has occurred since WWII. It will also need to occur in the context of the now clear understanding of our impacts on the Earth. 

Essentially we need “quality globalisation” rather than the unsustainable, geopolitically-oriented market-based globalisation that has predominated since WWII. Many of the ideas that I discuss at MacroEdgo.com will be important, but the implications will be far, far greater than anyone can currently imagine.

Greater mobility between countries will be important, as will very open trading and commercial links between all countries.

Ironically, while many ethno-nationalist Australians are attempting to subvert the climate change debate to use it as a reason to reduce immigration, one of the most effective contributions to climate change that Australia can make is in continuing its recent high level of immigration or even increasing it.

This is the case for all developed countries that have what we might describe as  “developmental space” – analogous with the economic term du jour “fiscal space” – to grow their population in a well planned and generous manner to move toward equalising the mean standard of living of humanity.

This will, of course, require significant infrastructure and innovation to minimise local and global environmental impacts. However, again, this is supported by the comments of Attenborough in his 2011 speech where he described Australia as being “big and empty”, thus indicating his position that we do indeed have significant “developmental space”.

Australia has a proud history of success at taking in people from all over the world when responding to humanitarian crises. This history has, however, been tarnished in the last 2 decades commencing under the Howard Government’s response to “boat people”, but this does not diminish the immigration successes.

The fruits of our very successful post-WWII migration policy are visible all throughout our society – in our school yards, in our restaurant strips, and all of the places where we come together as a community. The Asia migration period, now with African and South American migrants, too, is every bit as successful from my standpoint, but I realise that there are elements within our community that seek to portray it is as troubling.

No doubt there are challenges, such as infrastructure provision and housing, but these must be the attention of our endeavours for solutions, not the migrants themselves who just want the same things from life that we all do.

It should be obvious to everyone that there is an enormous opportunity here for a climate and environment-sensitive nation building narrative – the type that Politicians of all descriptions are normally so keen to jump on – the only problem being that the divisive xenophobic element must be addressed for once and for all.

This is demonstrated by the 2019 Australian Broadcasting Corporation’s Australia Talks Survey where 54% of Australians considered immigration a “problem” – unless, of course, many thought the problem was that we did not have enough immigration (I think it a fair assumption that that is not what they meant).

To those who reject the notions within this essay I say this. Each and every citizen of a wealthy country needs to stop and think right now. If you choose to remain indifferent to this conundrum, then you are actually choosing a world where you continue to enjoy the proceeds of living on an island of prosperity at the expense of others in poor countries who will increasingly suffer as climate change impacts worsen. And your high standard of living will be increasingly protected at the point of a gun with increasingly aggressive and callous military actions to keep those increasingly desperate people suppressed.

It is time we stopped pussy footing around this reality – as Attenborough said, it is much too late for fastidious niceties.

Let us stop not spelling out the truth as some form of political correctness so that people in wealthy countries can continue on with their commerce-producing mindless consumption in a guilt-free manner.

To achieve this transformation the political class will most likely put the globe and their specific nations on a war footing to deepen the non-partisan buy-in from their citizens and to ward off the populists.

This time, however, it will be a war for all of humanity – a united humanity – instead of against or within humanity.

Let’s wage war on climate change!

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© Copyright Brett Edgerton 2020

As survivors of the Auschwitz concentration camp mark the 75th anniversary of their liberation by appealing for people to remember the perils of indifference, the Wuhan coronavirus is set to test multicultural cohesiveness in a way that has not been tested since World War II.

 The European Day for Remembrance of the Holocaust is 27th of January, the anniversary of the liberation of the concentration camp at Auschwitz. This year the commemoration was especially poignant – not just because it marked the 75th anniversary of the liberation of Auschwitz survivors – but because many of those survivors spoke up about concerns about humanity forgetting the lessons that their hellish experience, at the hands of the Nazis, delivered the world.

During the Holocaust 6 million Jews were slaughtered. At Auschwitz 1.1 million people, mostly Jews, were murdered. 

More than hate, the Holocaust survivors feared indifference because we know that in any large grouping of people the number of people who will be racist to the point of hate will be minor. It is the indifference by others to xenophobia and prejudice which allows the haters to rise up and become powerful.

In my own country of Australia the events of the Holocaust seem a world away, and most contemporary Australians would consider it largely irrelevant to our culture. However, Australians have a long history of indifference to racism. 

The first, and thus longest lasting form, of racism is towards the Indigenous Aboriginal peoples, which started soon after colonisation (better described “invasion”?) even though the leaders of the new colony were surprisingly enlightened and in many ways had a higher regard for the Aboriginals than certainly the convicts that they were charged with keeping incarcerated.

In the early stages of the colonies there grew a virulent racism against Indians and Chinese, which evolved into formal legislation known as the White Australia policy which remained in place until the 1970s (Lockwood, R. “British Imperial Influences in the Foundation of the White Australia Policy.” Labour History, no. 7, 1964, pp. 23–33. JSTOR, www.jstor.org/stable/27507761. accessed 18 October 2019]. As brilliantly articulated by Tim Watts (2019) in “The Golden Country: Australia’s changing identity”, now over 40 years since the formal extinguishing of the White Australia Policy, there remains a great degree of indifference to Asian Australians.

The waves of Asian immigrants over those 40 years, initially mainly from conflicts in Vietnam and Sri Lanka and elsewhere, and more recently from China and India, has coincided with an increase in conspicuous ethno-nationalistic racism.

Moreover, even though surveys consistently show that the great majority of Australians object to racism and consider it an issue of import – highlighting on the one hand that there is a widespread perception that it is prevalent in society, and on the other hand that the great majority are concerned enough about that to consider it a problem – those same surveys suggest that indifference is highly prevalent.

For example, while the 2019 Australia Talks Survey conducted by the Australian Broadcasting Corporation found that 75% of Australians considered racism a problem, 54% considered immigration a problem.

Moreover, Watts (2019) did an excellent job of describing the multitude of ways in which conscious and subconscious biases and prejudices pervade all aspects of Australian society. In workplaces we are only now coming to grips with the impact of the Bamboo ceiling on crushing the aspirations of hard, smart working Asian Australians, and on how that is having a deleterious affect on business innovation and productivity.

It is for this reason that I believe very strongly that quotas are necessary to bring about sustainably diverse workplaces in Australia.

Australian politicians have had an unfortunate habit of playing on this indifference and latent xenophobia to garner political support, and even though the 70s marked the highpoint in bipartisan support against racial discrimination, since the emergence in the 90s of Hansonism and the global success of populist parties overt indifference to xenophobia has been too enticing for those on the right side of politics to ignore. 

In pandering to these xenophobic elements their divisive views have been given legitimacy and social cohesiveness in multicultural Australia has been setback significantly.

In a “former life” I was a research scientist specialising in disease of aquatic animals. I had a special interest in viruses and carried out some basic virological research on a few novel viruses that I discovered.

So to preface what I am about to say, I would describe myself as knowing much more than the average person about microbiology and virology, but much, much less than a cutting edge contemporary virologist like Shi Zhengli who is based in Wuhan and has been conducting research on these coronaviruses for the past 15 years including leading the research team responding to the current oubreak.

I mention Zhengli because I know her. She did her PhD in the laboratory of the brilliant and legendary invertebrate virologist Jean-Robert (JR) Bonami in Montepellier, France, where I worked for a year, and I visited her in Wuhan many years ago. Zhengli was also kind to list me as a co-author on a paper published soon after I had retired from scientific research. Zhengli is a wonderful person and researcher of the highest quality and when I learned that she was intimately involved with the response to this outbreak I immediately felt better about the situation.

Evenso, I have great concerns for the implications of this outbreak. To be clear, in no way am I suggesting that I am an expert – I am no longer even an expert on crustacean diseases even though a decade and half ago I was one of the global experts. And I have not spoken with Zhengli in many years so I have no special information. These are my own views which are based on common sense as much as anything else.

I recall in the early 90s reading about the Ebola virus. People do not realise it, but for a virus it is massive and it is scary looking! I commented to a friend that it is so large it would probably feel like receiving an injection when it entered cells to replicate.

The thing about Ebola virus is that while it is deadly, it is not highly transmissible. It is spread by exposure to blood or other bodily fluids of a seriously ill person. While in poor countries with limited and basic medical facilities it can spread and cause some deaths it does not present a serious threat to humanity as modern biosecurity protocols can limit its spread.

Ebola gets media attention because of the high mortality rate and because the symptoms are so severe including haemorrhage and ultimately bleeding from orifices.

The really concerning diseases from a whole of humanity standpoint are those that are highly transmissible, have a reasonably long incubation period where the infected person is asymptomatic (so the infection is undetected) but is transmitting the infection to others, and which has a reasonably high mortality rate (ie. a reasonably high proportion of people who contract the infection die).

The information presented by the WHO on incubation period and asymptomatic transmission confirms that Wuhan coronavirus presents those first two characteristics. 

These characteristics combined make a disease difficult to contain and thus eradicate in its early stages, without need of a vaccination program which will take time to develop and administer widely.

At the time of writing the rate of increase in the total number of cases, the proportion of which are serious and very serious, and the number of mortalities, is indicative of a virus that is capable of rapid human to human spread in populations. It will be some time yet before it is fully understood how much of this is due to the ramp up in diagnostic capacity and public health response – i.e. some of this apparent hyperbolic increase in the number of cases may be due to increased diagnosis. If diagnostic capacity reaches a steady state with virus spread, in part due to biosecurity measures taken, then we may see the apparent hyperbolic spread become more linear and then decelerate. However, if the actual spread remains hyperbolic then diagnostic capacity might never catch up. 

The mortality and morbidity (what proportion of people become ill and to what extent) rates will not be completely understood for some time. Underlying health status of populations and other factors will play a part.

If the virus becomes pandemic quickly, then it will be the mortality and morbidity rate that determines the full cost to humanity.

With what is already public knowledge with regards the two week incubation period and asymptomatic transmission, I very much suspect that the WHO and the major countries are working on an assumption that there is a high likelihood that the Wuhan coronavirus will not be contained within China and that it will spread in Asia. Though I, too, am impressed by the response by the Chinese authorities and scientific community, early indications of the characteristics of this virus make it extremely difficult to contain.

I suspect that in the weeks ahead it will soon become clear that the virus has escaped the biosecurity net into wider China and into nearby Asian countries, especially the lesser developed countries which have less capability to respond and contain the virus.

One of the complicating factors is that it is still winter in the Northern hemisphere so it is perfectly normal that cold and flu viruses will be circulating, and so there will be no way that any country – and especially not the developing countries – will have the capability to isolate any and every sick person until they are tested and cleared.

Also significant is that we are talking about many poor people here who are not fortunate to enjoy a standard of living which affords them the best possible underlying health status. Moreover, these people have no social safety network, usually have tenuous employment earning low wages, and have little or no savings to draw on during a health scare. Thus these people will have little choice but to continue working rather than subject themselves to self-imposed isolation. 

At this stage, what I believe that the authorities are really working on is slowing the spread of the virus. Of course officials are not going to admit to this because they do not want to panic populations and create conditions which stretch (already stretched) social cohesion.

For those in the northern hemisphere there is a factor which will be supportive in those efforts. With the outbreak occurring at around the midpoint of winter, within another 10 weeks the most favourable conditions for respiratory viruses to spread will subside which will likely naturally slow the spread of the virus (at least compared to what it would be if conditions remained cooler).

Pharmaceutical companies will have around 6 months to swing into action and develop an effective vaccine, produce it in significant volumes, and administer it broadly in the large population centres in the northern hemisphere. My understanding is that, at this stage, there is no reason to believe that this would be problematic as it was with HIV (because of its unique characteristics).

Writing in Australia, in the southern hemisphere, the outlook is somewhat more frightening if I am correct in my analysis that the virus will not be eradicated this northern hemisphere winter. I would be unsurprised if more draconian measures were introduced in Australia than elsewhere in an attempt to prevent its introduction as we will endure a full cold and flu season without any chance of administering a broad vaccination program.

This will produce a great deal of anxiety amongst Australians.

Given Australia has a questionable history in terms of racism and xenophobia, and indifference to it, what are the early indications of how Australians are reacting to this global health scare originating from China and likely ultimately broader Asia?

Not surprisingly, the early indications are not good with many reports detailing increased verbal and online attacks on people of (presumed) Asian ethnicity.

Moreover, there have been reports of online petitions with thousands of signatories seeking schools to restrict families that have travelled throughout wider Asia from attending, and the New South Wales Government has requested that students who have visited China remain at home in isolation for two weeks even though the Minister admitted it was not medically necessary and was done to appease public concerns.

As the patriarch of a mixed Asian Australian family, I was at the shops early last Saturday morning with my wife. We went to a quieter, stand-alone supermarket and agreed that there seemed to be more people of Asian ethnicity out early there with us. We bought a little more food than we normally would so that we could reduce the frequency with which we need to shop.

If my worst fears are confirmed over the next few weeks, then I expect that overt and angry xenophobia will be increasingly expressed towards Australians of perceived Asian ethnicity as the Wuhan coronavirus spreads especially throughout Asia, and as people become more fearful as Australia heads towards a long and difficult cold and flu season.

In my earlier seminal essay “Xenophobia Must Be Challenged For An Effective Response To Climate Change Inclusive of Population Growth“, I explained the clear-cut logic on why it is imperative that leaders provide strong leadership in denouncing racism.

I consider the climate change crisis to be the greatest challenge to humanity, and I can see no sustainable and durable response that does not involve a more cohesive humanity built on equivalent access to the same standard of living irrespective of where on Earth one chooses to live and raise a (typically small) family.

Depending on how the Wuhan coronavirus outbreak progresses in the next few weeks and months, and how successful are the scientific and pharmaceutical communities in expeditiously developing an effective vaccine, this disease may prove to be the most serious immediate challenge to humanity. 

Moreover, if this outbreak is successfully contained and eradicated – primarily on the back of the impressive response by the Chinese authorities – it still gives an indication of the tenuous nature of our existence on this wonderful planet, and just how quickly the reality of our existence can be placed in danger.

Most significantly, it highlights that whether we are talking about acute or long-term crises, the reality of life on this Earth for humanity is that we have no choice but to face these challenges together.

Acting individualistically and with self-interest can not produce the sustainable effective response for which all people wish. 

Clearly there is little chance of humanity coming together and working towards solutions to the greatest challenges if the groundwork to build mutual trust has been neglected. 

Therefore, the best vaccine against crises is social cohesion within societies and across humanity.

Social cohesion within multicultural societies is the best stepping stone towards cohesion across humanity. And to do that we must address all of those biases and prejudices within our societies from the ground up, in our workplaces and in our day to day lives, and we must demand of our elected leadership that they work towards a united humanity, and we must punish (politically) those who seek to divide us.

That, I believe, is a world that the survivors of Auschwitz would want for us all, and as it was articulated so warmly and brilliantly by President Roosevelt shortly before his all too early passing.

Addendum

In times of crisis it is very much human nature to reach out to friends in potential danger and inquire on whether they are doing OK, and to let them know that you are thinking of them and wishing them well. I certainly have received those types of emails myself from friends overseas this past summer as they expressed their concern and sorrow for the bushfires in Australia.

I guess we all hope that that brief moment of personal connection – a few kind and caring words, a smile, a pat on the back – will provide some emotional support to our friends and at the same time nourish our own souls.

That is what I did yesterday. After a long time I reached out to Zhengli to let her know I care and that I am thinking of her and her family. I had an inkling that she might be involved in the research into the outbreak, of course, but I was entirely unaware of her career successes since my early retirement from scientific research. Zhengli responded quickly, which I appreciated given the enormity of the challenge she and her team faces – I like to think a brief heart-warming personal distraction provided some light relief in the midst of the intense environment they are undoubtedly working through.

I am so glad that a person of the quality of Dr Shi Zhengli is heading up the research response to this current outbreak – a better person you could not meet, a loving mother and caring friend, and an exceptional scientist. We should all be grateful to her and her team, and our other Chinese friends responding on the ground, who are making significant personal sacrifices for all of our benefit.

As I have said on numerous occasions in my writing, it is when we face collective crises that we truly know that we are united together as human beings against our greatest challenges. Please let this be a lesson that we can hold onto and move forward together before we damage ourselves and our wonderful planet to a point where all of the progress of the last century is lost.

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© Copyright Brett Edgerton 2020

I have little time for most of the “talking heads” that appear on mainstream television and comment throughout the mainstream media, presenting themselves as all-knowing on economic and investing topics and seeing themselves as fulfilling a vital function in society telling people what they should think.

Often these people have developed a quirky or folksy persona, perhaps having modelled themselves on the ageing Warren Buffet, attempting to lull the audience into a sense of security harking back to a primordial feeling of safety and affection afforded by one’s grandfather. (Seriously, think about it and you will realise that there are quite a few media, investment and business professionals that fit the bill!)

I find it comical to watch or listen to segments where the audience interacts with these sooth-sayers especially after the advice-seeker has been given some food for thought from a dreaded “Doomsday Merchant”. 

Invariably “Poppa” immediately moves to, metaphorically, wrap his reassuring arms around the scared youngun (or not so young) and gently suggest that they just close their eyes and drive away that anxiety by listening only to his soothing and reassuring voice. 

In actual fact this attitude is very widespread in the financial services industry in Australia and these more visible members are just the tip of the iceberg. 

I was especially disappointed with a lecturer when I did a short course of subjects as a potential step towards becoming a financial planner. The lecturer had worked for one of the best known advisories in the country and she spent a great deal of time telling the (mostly young) participants in the class that a major aspect of the role is in calming clients particularly during times of market volatility, and she used specific examples of people who wanted to go to cash during the Global Financial Crisis.

We had a heated debate in class, with her stating a preference for it to occur outside of class so that I did not influence my class mates, while I ensured that it took place in the class as I knew it was important that they hear that there are different points of view to what was being taught. 

I said that an advisor investing so much of their subjective view on the actions of clients would leave themselves at risk of litigation in the case of a prolonged and severe downturn, and I highlighted the cases of the post 1929 US stock markets and the post 1980s Japanese stock markets which experienced very deep and prolonged downturns.

I also pointed out that somebody who goes to cash even after the market has fallen 50% is better off when the market retraces 90%! Just because it has not happened in Anglophone countries for many years does not mean that it will not happen, and as I explained in my assignment (and in my manifesto on this site) the job of the advisor is to fully equip the client with the opportunity to gain the knowledge and skills to make their own decisions, not to force one’s own views onto clients.

In the case study that this lecturer gave, her clients, of which she provided their actual portfolio at the time of the GFC, had been retired for a few years, and thus were at the most critical period for adverse “sequencing risk” involving a fall in the market price of their assets, and were fully invested in shares, and mostly Australia sharemarket funds! At the time that she delivered the lecture, in 2014, indices of the Australian sharemarket were still well short of the 2008 peak and they did not surpass those levels until very recently in late 2019. 

The lecturer said that she held their hand and convinced them not to go to cash, and instead encouraged them to obtain more capital to invest in shares for a bounce back which they did. The actual outcome for those clients will largely depend on how much new capital they used to purchase more share funds, and how early in the correction they invested that new capital, but there is no doubt that these clients were taking on a very, very high level of risk particularly given where in their investment lifecycle they were.

I leave it to the reader to decide whether the clients received good advice but I can assure the reader that it is not the advice that I would have given nor would my advice have suggested in any way that they should be fully exposed to sharemarket movements at their stage of the investment lifecycle.

So why do so many in the Australian financial services industry take it upon themselves to shout down any negative views, and cheerlead the lesser informed investors into continually buying the dip and/or continually providing a flow of funds into markets via dollar cost averaging?

As usual the answer lies in self-interest. All financial services industry members obviously are active in the markets themselves, and thus their aspirations are dependent on them, so they have a powerful incentive to maintain confidence in markets thus protecting asset prices. After all, the price of any asset is a function of the price paid in recent transactions. That is a serious conflict which produces widespread groupthink in an industry where most espouse a doctrine that markets over time will always move up so it is best to continually deploy your capital.

Of course, many in the industry, and especially the elites, profit more from flows in funds rather than the prices of the assets themselves. It’s the same in real estate, shares, bonds, various managed funds, ETFs, etc, etc.

In reality it is only the small fish – the Plebs – that are particularly dependent on the actual price of the assets. The really powerful interests have little concern for what happens with asset prices just as long as fund flows continue on which they can continue to clip the ticket or “tax” the transactions.

That is why I have come to consider the finance industry, including the capital markets, as essentially a massive funnelling or vacuuming apparatus where scraps continually “fall off” flows of cash which are then siphoned upwards and accumulated by the global elites.

So, while some describe the current state of our capitalistic system as being based on trickle-down economics, where scraps fall off the table of the elite down to the everyday person, I see it as quite the opposite.

I believe that it is incumbent on the everyday person to fortify themselves with knowledge and skill so that they can better secure their hard-earned nuggets of wealth lest they be rapidly siphoned up and off them and directed to the elites.

So if the elites do not really need asset prices to increase to maintain their wealth, why are the cheerleaders always putting a positive spin on asset markets, you might ask.

Well, just as Central Bankers have realised, what they are really selling is optimism and confidence which creates “activity”. Sure a correction or a bear market where people re-allocate and/or buy the dip creates capital flows, potentially strong flows. But the worst market is a dead market where nobody talks about asset prices and that will only be created by the depths of despair that are associated with a prolonged bear market which has not been experienced across developed markets in decades.

This would be the worst outcome for the elites and it is something to be prevented at all costs. 

I admit that the process is so systemic and embedded that very many consider these views, such as it is “time in the market not timing the market that is important”, to be truisms or facts. However, as the calls in to the “talking heads” show, many want to be ignorant to risks and they want people to tell them what they want to hear. 

There will never be a shortage of “experts” who will provide them with that illusory security.

Here is the simple truth – if you can not listen to anything and everything said about the markets and not be comfortable in your positioning, then something is wrong. If you are frightened or made to feel anxious by what you hear or read, then you need to question yourself on why that is the case. If on reflection you realise that you are taking on more risk than you are comfortable with, then you need to act. If you realise that you are insufficiently informed to be in your positions, then re-allocate to positions with which you are more comfortable.

We rarely become fearful unless there is an underlying real basis to our fears. If you find yourself fearful, then you need to act rather than go searching for a soothing voice who will help you to apply a set of blinkers and narrow your world! They have their own interests in mind, not yours, even if they have convinced many otherwise, and possibly even themselves.

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© Copyright Brett Edgerton 2019

As a single income family dependent on the income of an Asian-Australian female, and having two sons of obvious Asian-Australian descent, workplace diversity is an issue close to our hearts and it directly affects our security on many levels.

For anybody wishing to authentically open their eyes to the challenges minorities face in their careers and in day to day life in Australia, then I can suggest no better reading than “The Golden Country: Australia’s changing identity” by Tim Watts and it should be your first point of call.

Its importance to our family does not mean, however, that my wife and I agree on how workplace diversity in Australia should be addressed.

My wife is not supportive of quotas; she has concerns for workplace cohesion with the best person for the job not necessarily being selected, and she identifies with the disappointment of being overlooked when management has chosen a lesser suited female and she has assumed, based also on prior placements, that management did so as that female had become “a quota filler” in the organisation. (I have seen some writers elsewhere, such as Medium.com, use the term “tokens” but when applied to the entire female gender I would suggest my term is more appropriate.)

I see it as a rather simple mathematical concept. If throughout career lifetimes groups of people and minorities are prejudiced against which slows their progression, from the commencement of their career or from a certain level, then it is entirely logical that the higher the position level the larger the relative pool of individuals who have not been held back by prejudice from which to choose (see diagram below). 

Figure 1 provides a concept of the level of positions within a profession with the very broad base being the lowest level positions and the peak being the very highest positions that can be attained. Many people hope to progress right from bottom to the peak but as one climbs the fewer the number of more senior positions available relative to their current level. There are, after all, only so many Chief Executive Officer roles!

Figure 1: Positions within a profession.

So in a perfectly functioning meritocracy Figure 1 would relate to all individuals within the profession and how far one progresses upwards would depend on our intelligence, in all of its forms, and our effort. But we know from the data that we are not working within a meritocracy and groups of individuals are being prejudiced against by people within professions and workplaces due to conscious and sub-conscious biases.

Consequently, while the population average conforms to Figure 1, in reality various subgroupings of people are experiencing conditions quite different to the average, with some experiencing conditions more favourable for career progression while others are experiencing conditions less favourable for progression.

Examples of these difference are represented in Figure 2, where 2A represents a group that has experienced conditions more favourable than average for career progression while 2B represents a group that has experienced conditions less favourable for career progression right from the outset of their careers. Notice that for each level above the base level there are fewer people in Figure 2B which further reinforces the trend, i.e. amplifies the biases, such that the higher the level the significantly smaller proportions of individuals in the unfavoured subgrouping.

Figure 2A: Positions held by favoured subgrouping.

Figure 2B: Positions held by unfavoured subgrouping.

For interest I have also included Figure 2C which represents a situation where a subgroup experiences average career progression conditions to a point after which biases begin to affect career progression. This might represent women approaching prime to late child-baring age, or it could represent a group of people (perhaps an ethnicity) biased against where the dominant (favoured) subgroup promotes a view that minority groups, while good at process functions, are not good at higher level tasks and/or creative thinking.

Figure 2C: Positions held by subgrouping receiving average conditions for career progression early but then unfavourable at a point in time.

Of course, many will be subjected to several prejudicial biases.

The simple reality is that because subgroupings of people have been subjected to prejudice through their careers, perhaps from the very outset, then the pool of individuals available to choose from for higher level positions will be significantly smaller than the pool of individuals which have enjoyed favour. That will be true in absolute numbers but will be especially significant when dealing with minorities due to their lower representation in the entire workforce.

Thus there is no way to avoid the reality that if these biases and consequent prejudices are to be eliminated from corporate structures, it is going to be the case that some times an applicant from the unfavoured group with less experience will be given a chance to prove themself in a position above someone from the favoured group with more experience. After all, some of that extra experience was gained at the expense of other individuals who did not really have equal opportunity.

What is important is that when somebody is chosen to correct diversity that that person is authentic and of a high calibre, and is not necessarily somebody who shares more in common with the favoured group rather than the unfavoured group. When this occurs it is the most destructive for workplace cohesion because everybody understands that it is purely done to fill a quote and nobody respects the decision. In fact, it is such a poor decision as to suggest deliberate sabotage of the intention of the whole exercise, and may well be done as a conscious or subconscious attempt to undermine it and thus retard the process and prolong the status quo.

Also critical is that Business leaders show genuine leadership on this issue and guide organisations so that everyone understands the necessity for the imbalance to be rectified. In this respect Alan Joyce, the CEO of Qantas, has been a shining light for one subgrouping of individuals and deserves congratulations.

At their AGM in October 2019 Alan Joyce was asked from the floor why Qantas had not done a better job of promoting diversity. He responded that he felt that they had done very well on diversity having a gay man and 4 women on the board.

For someone who is so passionate about discrimination and prejudice, it is a real shame that he seems not to appreciate or care about other forms of it. 

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© Copyright Brett Edgerton 2019

In this section I will concentrate heavily on my upbringing in rural Queensland because the trends are perhaps even more marked, and thus serve as an excellent example, but these same trends are just as relevant in urban centres.

When I grew up in the 70’s and 80’s in northern Queensland, every Saturday morning the main street of my small home town of Innisfail swelled with people getting about their business – doing their shopping (the grocery stores closed from midday Saturday until 9am Monday), sporting groups running fundraisers, and people generally milling around and catching up with friends. If it was raining, as it often does in Innisfail, then there were even more people because the farmers could not work in the paddocks.

The specialist shops were busy with people spending their money, sometimes a bit more if the sugar price was high. Unless they needed something very specific and not available in town, nobody would have ever dreamed of driving the 85 kms to Cairns where they did not know many people, and people wanted to support the local businesses who were run by and employed people who they have known all of their lives. 

Recently my father relayed the story on how as a child in the early 1950s his family would only make that journey several times a year, and how special it was to him as a child as they would buy fish and chips and sit on the Cairns esplanade which was about as developed as what Kurrimine Beach is today.

There was obviously a strong social compact within the communities – the shop owners wanted to do the right thing by their customers, and they had a strong self-interest in doing so since everybody in town would soon know if an owner was not sticking to this social compact in all of its facets from the quality of goods or services that they provided to the way they treated their customers and staff.

Of course by the 70’s Innisfail businesses were offering goods that were produced outside of northern Queensland, unlike in my Great Grandparents’ and Grandparents’ time when, because of the remoteness and more difficult transportation, a higher proportion of goods sold would have been produced locally (including, to my recent surprise, pasta from a local factory to serve the very strong local Italian population.) However, given that tight social compact in the town the shop owners needed to have a great deal of surety in what they sold because their livelihood – and more importantly, their pride and reputation – depended on it. There were several fruit and veg shops run by Asian grocers, whose families migrated during the gold rush in the 1800’s, and they often bought from local farmers when they had surplus melons, cucumbers, pumpkins and so on.

Innisfail has a strong history of multi-ethnicity and multiculturalism, and there are proud monuments demonstrating the involvement of non-British migrants in the town’s development including the canecutter statue on the banks of the Johnson River a gift from the Italian Community, the wonderful Chinese Temple on Ernest St, and the nearby Paranella Park built by an early Spanish migrant. However, many felt pressure to conform – to be “Australian” – and faced additional obstacles to succeeding while the White Australia Policy remained in place (see here).

Nowadays Edith St is usually very quiet over the weekend. Cairns suburbs now extend a further 20 km or so south to Gordonvale, and especially young Innisfail families think nothing of jumping in the car and travelling the distance to the large shopping centres even if the drive time has increased (since the 70s in any case) due to traffic. There they buy the same goods that all Australians buy throughout the country, and in many cases what people throughout the world purchase. They do not know the shop owner, and, as suggested by my own experience with my sofa that I outlined an earlier post, the shop owners know they are selling the same standard of goods – if not the same goods – as any other retailer and product failure is thus not a major concern but is incorporated into pricing. As a consequence, product failure is undoubtedly very high for many categories of goods.

There are no fruit and veg shops remaining in town, though some farmers will occasionally sell product on the side of the road. With the fruit and veg shops having closed many years ago, believe it or not, even though Innisfail is the centre of the largest banana growing region in the country, all bananas sold in supermarkets at a minimum travelled 3,500 kms (a return trip to the Brisbane markets though I have been reliably informed that most go via Sydney) even though some would have been grown, processed and packed for sale as little as 5 kms from the supermarket!

As I explained in that earlier post, I cannot see a future for humanity where so much resource from all over the globe is consumed in the production of cheap goods which are used briefly and then require additional resources to deal with their disposal. I also stated that I did not believe for a moment that the true cost to humanity was incorporated into their pricing for if it were we would not be witnessing such incredible waste, and that this would need to occur, and when it did it would result in higher quality manufactured goods potentially much closer to the point of sale and access to suitable repair skills at a relative cost which makes repairs economically viable.

In October the incoming President of The European Union, Ursula von der Leyen, proposed the introduction of a carbon border tax as a part of a new Green deal to address the climate issues that our Globe confronts. The proposed tax would seek to prevent businesses from arbitraging between locations which have different levels of climate-related measures and taxes, thus ensuring that EU-produced goods manufactured with higher climate-related standards, and costs, are on a level playing field with goods manufactured elsewhere when sold within the EU.

This is a move in the direction to which I highlighted in my post and I consider it to be just the start of a long but very necessary process.

I can also see a great deal of potential for innovation in conjunction with this stepped up regulation to ensure significantly better utilisation of natural resources and to extend the working life of products. For example, for repairing of goods to be common-place once again there is going to need to be access to parts. However, this may not necessarily mean that each manufacturer has to guarantee to supply parts which would necessitate significant logistical spend and costs. 

With rapid advancement in 3D printing technology, it will likely be possible to obtain many parts on demand as and when they are required. I can easily imagine the widespread proliferation of 3D printing businesses – some printing plastics, some basic alloys, some high stress structural alloys – where anybody can email a CAD of the required part which will be printed almost immediately. Many families would have basic 3D printers at home and in the example of the cheap trampolines that I mentioned in my earlier post, where the caps securing the safety net seem to always be the first part to fail, would most likely be able to print the plastic caps themselves as these fail and require replacement.

In this case it may well be regulated that product sold or imported must include access (open or licensed depending on the level of good) to digitised and printable parts.

While this regulation will greatly extend product life and reduce product turnover, and other measures will likely reduce resource waste such as regulation and punitive costs for waste processing and disposal, I expect that resource recycling will continue to grow in importance. Much of this is in train now and is driven by the collapse of the “compact” of the last three decades where the developed world increasingly adopted a throw-away model with cheap product originating mostly from China and in return China took back the waste from those developed countries for processing.

With the increasing trade tensions over recent years, China has increasingly refused recyclables on the basis of contaminants and other factors. This has created a problem for backed-up recyclables in the developed world. With trade tensions very likely to persist for many years (as discussed in Theme 1), and with China wanting to prove its environmental credentials (processing recyclables is a high polluting endeavour) as a point of difference with particularly the Anglophone countries, thus underlining their inclination to lead humanity in this area of critical concern, it is unlikely that the previous compact will soon be reinstated.

Waste processing and resource recycling is likely to be an area of very significant investment going forward. 

As a consequence of our links to our temperate colonial history, Australia’s fruit and vegetable markets were especially susceptible to centralisation. For many years it simply was not possible to buy seasonal fruit grown locally throughout much of Australia because what was desired were mostly temperate varieties which could only be grown in a small proportion of the human-inhabited regions of Australia.

When I lived in Montpellier in southern France, which is at the most northern reaches of the Mediterranean Sea, I was shocked to realise that I was equidistant from the equator with the middle of Tasmania!

Plant breeding programs have succeeded in extending the range in which those temperate species are commercially produced, e.g. by reducing the chill hours required for pomes to set commercially viable crops. European friends are always astonished to learn that in Queensland our strawberry season is in winter whereas in their natural range it is in summer when the daylength, at their latitude, is very long so that the soft fruit ripens and sweetens very quickly. Until I visited Finland in 1996 I disliked strawberries for the only ones that I knew had a 0.1 mm rim thickness of redness and were entirely white inside and were tasteless. And all Australians know the story of our store-bought tomatoes. 

One of the greatest joys of spending time in Europe for my family is the access to quality produce. When living in Europe, and now when visiting on holiday, it is entirely appreciated by us that, unless we are in the biggest cities, we will only be able to eat the produce that is in season at the time in the region that we are visiting. It might be disappointing to miss the cherry season. But we known that when we visit a market or a fruit truck that what is available is in season in that region and it will be the best you can possibly get, quite likely the best you have ever had!  

Obviously crops produced within their natural range of conditions are easier to farm. Thus productivity is greater and the produce is more natural with less human intervention in the form of chemicals, energy used and water consumed.

Undoubtedly breeding has improved the productivity and marketability, if not necessarily organoleptic characters (below is a photograph of some particularly tasteless strawberries I bought this past winter), of temperate varieties produced in subtropical regions, but one has to wonder why so much effort has gone into it when there are other varieties which are more suitable for production in the region and in many cases are already present there plentifully to experienced observers.

By way of example, my Sri Lankan-born wife, on our first trips to Innisfail, pointed out that she knew the shady trees on the beach as “kortung” and that they contain a delicious nut reminiscent in taste of almonds, the passion fruit-like fruit that grows on vines which climb over our sugarcane crops and necessitates chemical spraying is edible, and the small fruit that grows on the thorny shrub which my father calls “devil’s fig” and grafts his eggplants onto is great in curries. The funniest incident was when driving to our fuel supplier of many years my wife screamed with excitement for me to stop so she could get out and pick some “jumbu” from the giant tree across the road. (These are the fruit red in colour and pear-like in shape commonly sold in markets and by the side of the road in Thailand in the fruit trays.) As she approached us munching on the biggest fruit of this type she has ever had, while Greg pumped our fuel he said, “you know we’ve looked at those big beautiful red fruit for years wondering whether we could eat them”.

The potential for alternate crops more suitable to being grown locally throughout Australia is enormous and the more multi-cultural and open-minded we become the greater the opportunity. Of course indigenous culture has much to add on this subject. 

I am not saying that apples should not be sold in northern Queensland and bananas should not be sold south of Coffes Harbour, and here I have to give a plug for the industry of my home town for I believe that while tree-ripened Cavendish bananas are better than commercially farmed bananas picked green and ripened artificially, the difference is quite marginal and it is no wonder that it is one of the most popular fruits throughout the world. 

I am simply saying that in a more environmentally aware (and health-conscious) society there will be far greater attraction to consuming locally produced food.

That opens up a great deal of potential for investment and prudent investors should be aware of this reality. And it would be a major departure from our centralised marketing and distribution system of food, and that has widespread consequences.

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© Copyright Brett Edgerton 2019

War… Wo, wo, wo, what is it good for…

I never cease to be amazed by the predisposition of human beings for wasting resources, but in reality the greatest waste of human beings through history has been OF human beings (as in their lives).

To get a flavour of this there are several convenient sources on the internet such as the Wikipedia List of Wars by Death Toll Tables or the impressive graph at the Our World in Data website which shows the death rate by year relative to the global population encompassing all major conflicts over the last 600 years.

In World War I over 23 million lives were lost in conflict and as a result of the war, including disease and especially the 1918 flu pandemic which occurred at the conclusion which is considered to have been spread by the returning soldiers.

Around 50 million lives were lost in World War II.

The World in Data graph especially highlights the horror that was World War I and II to our humanity about as well as any data representation can.

Recently I saw an elderly investor speaking on Bloomberg about the persistent funk the Global economy is experiencing, with low inflation and so on, with the Central Bankers struggling to gain any traction at all with their previously considered experimental monetary policy tools which is often described as them “pushing on a string”. The Bloomberg presenter asked the investor for his view on what would get the global economy out of this malaise.

The response was alarming and it reminded me of the early realisations that I made on global economics back 25 years ago. The investors said that in the past what got the global economies out of funks like this one was a major war.

I do not know why it alarmed me so greatly. This was something that I already knew, and since early in the post-GFC period (note, I struggle to call it a recovery because I suspect that the only thing that has recovered is asset prices along with the Global debt engine) I have been acutely aware of the parallels between the current situation and the 1930s. 

I guess I had not been directly linking emotionally between the parallels of the economics of then and the societal implications. However, when I heard a gentleman that lived through WWII – and in many ways looked like a veteran I might have seen at an ANZAC day parade some years back – the horror of that reality rushed to the forefront of my mind like a flashback to a horrendous formative event.

It is one thing to talk in theory of consequences of economic malaise leading to a more fractious geopolity and then to cold or hot war. But it is an altogether other thing to start to think exactly what was the lived experience for those who have had the great misfortune to have endured actual war, and to contextualise that in our modern world.

I have always appreciated the line in the Hollywood movie “Troy” – “Wars are young men dying and old men talking” – and when I went looking to find out who may be credited in history with saying it, unsurprisingly, again, it seems it was FDR – Franklin D. Roosevelt (though I have to admit I could not find equivocal proof on that).

While I am glad to say that now there is much greater appreciation for the diversity in both groups – those who talk and pursue diplomatic means, and those who overtly risk their lives in the defence of freedom – the entire concept of a major world war is terrifying in this world where the nuclear element means there is a pall of guaranteed mutual destruction hanging over us all from the very outset of conflict. 

It does not pay to consider what might have been the outcome had history’s past megalomaniacs had access to such a final statement when their fates became obvious.

A leader, however, does not necessarily need to be a megalomaniac to have a predisposition to giving the order to put young lives at risk in a thinly justified armed conflict. If psychopathy is significantly more prevalent in the individuals that climb the ranks of our corporations it is hardly news that such traits are common amongst those who climb the political ranks.

And in recent decades political and bureaucratic leadership has grown a fond almost reverence for the phrase “never let a good crisis go to waste”.

Now I do have some thoughts especially around US President Donald Trump on this issue – that I will share in another post – but at this stage I am going to completely sidestep the reality that there are likely to be some “Dogs of War (and men of hate)” (thanks Dave Gilmore for the turn of phrase) arguing for the “benefits” of a “good” global conflict, and get right to the point.

Are we not already confronted with a crisis of our own making?

Is the great majority of our scientific community not warning us that we face a dire climate change crisis?

Of course the answer to both questions is an emphatic yes! 

As an Australian the almost continuous devastating bushfires of this last summer has made it increasingly obvious to everyone – even our small “l” political leaders – that we are nearing a point where the general public is going to break ranks and get hostile to our leadership if they do not begin to show authentic leadership on this issue.

What I cannot help but keep on wondering at is why politicians have seemingly been operating under the parameters that they needed >90% public agreement on the climate crisis before they will act.

Why is the bar on public opinion set so very high on this particular issue, so much so that it would appear to mirror – literally, as the result is reversed – another well described period in Australian politics where there was much discussion of democratic deficit in Australia, in the lead up to the second Iraq war.

On that occasion public support for joining with the US in a second war against Iraq was underwhelming to say the least, so much so that before the war no poll showed the majority of Australians to support it. Moreover, many that were against our involvement were so strongly motivated around this position that they attended rallies against our involvement.

My most significant recollection of the second Iraq war was how it marked a new level of management of the media by the US military apparatus, where it provided a front row seat to the 24 hour news media – that is to the story that they wanted portrayed – by supplying the expensive necessary infrastructure and “embedding” the “journalists” within the military structure.

That, I would suggest, is a testament to just how concerned were the US and its allies as to the potential for public disapproval of the war even more once it commenced. If something was learned about the Vietnam war it was the need for public opinion management!

Irrespective of what the political analysts might say about what the polling and other analytics showed of public attitude prior to the war, and likely attitudes and consequences for the Government once the war commenced, it appeared – to this observer – that John Howard was always going to make the decision to put Australian lives (and that of many innocent bystanders) in harm’s way to support America, no matter how flimsily articulated the argument for war was made, on the principle of our shared history and formative culture, and to win additional favour with the hegemony of the time. And, I dare say, in no small measure to sate little Johnny’s desire to express his personal power.

Individuals get no say in which drugs are approved for use within sovereignties. Drug suitability is agreed by a panel of appropriately qualified people, though domestic politics may play a part in whether the public contributes by way of subsidising patient access.

Why on climate change is the populace treated like each individual has the analytical skills to read all relevant literature and make an objective decision on whether human-caused climate change is real? 

Why is this issue so different to others in our history?

Sure, in Australia – like elsewhere – a major structural reorganisation of society and the economy will be required to combat the climate crisis. However, many of the people and organisations that supposedly our political leadership are so concerned to protect from this restructuring are already on board. They are prepared for mutual sacrifice for the greater good, which is considered to be uncommon in contemporary society (you know because we are all “greedy”).

So why waste that political and human capital?

For some difficult to fathom reason the noisy minority – in society and within the Government – are winning out and our response to climate change is muted, delayed and frustrated.

If our Australian and other global political leadership decide to grow into capital “L” Leaders and join with the few authentic Leaders working hard to take on the climate change crisis with all of the pride, passion, and determined fervour of a populace facing truly challenging circumstances with an uncertain outcome, the reality is that we will never know the counterfactual. The small number of skeptics that remain will always be able to say that it was never necessary and it was an enormous waste of financial resources and human effort.

But the very great majority of us, and our descendants, will forever know that any “waste” that might have possibly occurred along the way can never be in any measure anything more than infinitesimally small compared to the enormous waste of human lives by a power-hungry few, and compared with the enormous gift that is a quality life on this wondrous planet that we all share.

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© Copyright Brett Edgerton 2019

I can easily imagine how confused must be the typical Australian household.

At the beginning of last week we were told in a private data release that in November 2019 house prices across the nation increased at their quickest rate in 16 years

By the end of the week we were told how weak was our economy. National accounts had shown that our economy grew at the slowest rate since the depths of the Global Financial Crisis, and that we were in a “private recession” which was only prevented from being an actual recession by increased Government spending.

We were then told that the consumer has gone missing even though the Government had pumped dollars directly into bank accounts.

Unfortunately the Australian public can not turn to the Public Servants that head our Reserve Bank who should be the bastion of wisdom and most able to shine a light on what is the actual situation. No, as I have pointed out here and here these boffins seem to have cosied up to their political masters and business elites to be cheerleaders and peddlers of that all too elusive emotion loosely defined as “confidence”.

The contradictions are truly staggering and one wonders what would be the expression on the face of Ian Macfarlane if one was to jump through a wormhole and make reference to these (current) conditions in a press conference hosted by the then RBA Governor circa 2006:

• House prices surging at 1.7% per month, the fastest in 16 years and at 2.7% per month in Sydney (on a simple annual basis, of multiplying the monthly rate by 12, of 32.4%) and prices in Melbourne and Sydney – 50% of the national housing stock by value – within a few percent of record high nominal prices,
• unemployment 5.3%,
• Immigration of 1.7%,
• Historically high resources prices, and
• Low Government debt compared with other comparable nations.

Counterbalanced against:

• an inflation rate (consumer prices index) persistently below the 2-3% band,
• a RBA overnight cash rate at 0.75% having halved over the last 6 months,
• the majority of the nations’ economists forecasting another 2 cuts of totalling 50 basis points during the next year, and
• a RBA having publicly discussed experimental or non-conventional monetary policy known as quantitative easing as the potential next step, which Governor Macfarlane back in 2006 most likely would have immediately identified as “money printing”, and which most of those same national economists expect the RBA will commence soon after the RBA reaches the 25 basis point cash rate lower bound. 

It seems clear to me that Governor Lowe, who now has Ian Macfarlane’s former job, succeeding Glenn Stevens in between, is simply trying to put some blinkers on the consumer for one last hurrah, to the benefit of a long struggling retail sector in the hope that there will not be a further wave of closures in the post-Christmas lull.

At this stage it appears that Australians are not falling for the spin and collectively households have decided to recognise the elephant in the room – our debt which is now threatening to breach 200% of household income, and most certainly will do so if the runup in house prices broadens into greater transaction numbers which would be expected as prices approach record levels.

This is the conundrum to which I have long pointed. In order to keep our house prices elevated the majority of buyers will need to borrow significant sums – relative to the asset price and especially to their income – and with an absence of wage growth (for all of the reasons I detailed here and here) this is making the credit ratios of most individuals, and certainly of Australian households in aggregate, deteriorate.

Oh how quickly we move in contemporary politics and thus policy. Does anybody remember this discussion from all of 18 months ago when APRA was considering imposing limits on loan to income ratios for banks when lending for home purchases? The limit being discussed was 6 to 1, and when the ratio of median house price to median household income is around 9 to 1 in Sydney and Melbourne it was hardly surprising that many felt implementation would seriously curtail the market.

Another titbit that I recalled when reading back on my earlier comment was how at around that same time ex-RBA board member, Prof Warrick McKibbin, was suggesting that the level of household debt and house prices was not of concern and suggested that if the RBA wanted it should stress test the situation by increasing interest rates. In my comment I suggested that this was probably what the RBA and the other members of the Council of Financial Regulators had in mind in driving through price increases on interest free mortgages.

So how did that episode work out? I would suggest that there were more than a few stresses exhibited.

But that is now history. An abrupt turnaround in prices has been manufactured by halving the cash rate to 75 basis points and by, instead of stiffening macroprudential policies further, easing up on them.

This truly is the definition of a bubble and is an essentially unsolvable problem.

As I discussed here (at Investment Theme Debt Monetisation), the November 2019 RBA chartpack showed that house prices fell sharply during the period that those housing credit ratios stabilised. Now that prices are rising again those credit ratios will get worse as sales increase.

The RBA now admits that they misunderstood the impacts of falling house prices on consumption. No doubt they are hoping that rising house prices will have a positive impact. However, not all that long before this mea culpa they were arguing that falling prices would not result in a negative wealth effect because the earlier period of rising prices was not associated with a positive wealth effect.

So why would we have a positive wealth effect from rising prices now?

The larger bubbles blow the less stable they become and the more volatile the price movements. Essentially if prices are not increasing strongly then they are likely to fall sharply. 

We have been disappointed by a procession of leaders and treasurers, both intentional lower case. Remember how Joe Hockey realised in his final speech in parliament that negative gearing was not good for the country, and Wayne Swan, as the President of Federal ALP, has in fact decided that it is not a dream but a necessity to end negative gearing (see here for his comments directly to me when he was treasurer).

Though entirely unsatisfactory, we must realise that from the perspective of a lower case leader they are incentivised to delay the inevitable as much as possible even if the consequent bust will be worse. After all, politicians are no more incentivised to do the right thing by the electorate other than if it aids in victory at the next election.

Alternatively, if they delay the reckoning – or kick the can – enough such that the depths of the downturn are not felt until the following Government is in power then they can obfuscate and shift maximum blame on their political opponents.

Any close observer of the Australian housing bubble knows well that there is plenty of blame to be shared by both of our major political parties.

Unfortunately for the Australian people, all of this means that being stuck with a sclerotic economy for a very prolonged period is perhaps the best outcome that can be contemplated. The more rapid path of dealing with the debt overhang is perhaps the worst recession that Australia will suffer since the Great Depression. 

Which path we follow is not especially manageable and we remain extremely vulnerable to external shocks, and the more household debt we take on, the more that vulnerability grows. It is for this reason that the credit ratings agencies continue their pressure on the Federal Government to be prudent fiscal managers even in a world where many major economies are conducting non-traditional monetary policy.

In an email that I send to friends in May 2018, and which I posted online almost a year ago, I predicted that Australia would be in the grips of a serious downturn by now. I suggested that the high rate of immigration and resources exports might prevent the actual definition of a recession being met, but that the downturn is likely to turn out to be severe.

The temporary boost to confidence from the surprise re-election of the Morrison Government and their greater incentive to kick the can has slowed the pace of decline. But for all of the reasons that I detailed above, all that has been achieved thus far is a delay which has only served to increase the imbalances.

Meanwhile, more Australians are waking up to the poor quality of Australian leadership, and that is only underlined more as we observe a smoke-haze blood red sunset over Sydney and Brisbane.

Soon nobody will buy what the confidence sellers offer no matter what discounts they spruik… 

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© Copyright Brett Edgerton 2019

My toddler son had allergies to wheat, corn, dairy and eggs which meant that he only ever ate home-made food. At playgroups, while the other toddlers sat down to cheesels and M&Ms and any other manner of highly-processed sugary sweets, he sat down to leftovers of corn beef and vegetables.

One day at playgroup a mother made comment on what he was missing out on, and on reading the ingredients of the sultana pack that her child was gulping informed me that there were no allergens in that brand. At around 18 months my always placid and well-behaved toddler had his first exposure to concentrated sugars in a small pack of sultanas. Not surprisingly, he loved them. 

We went to the supermarket on the way home to buy a multipack and I allowed him quite a few individual packs in the next few days. On the third day, my son was standing at the door of our pantry, banging it with his fist repeatedly, yelling “I want more ‘tanas! I want more ‘tanas!”

It was a powerful demonstration of how human bodies can quickly develop a craving for sugar. 

It was also an insight into human nature; nobody likes access curtailed to something to which we have previously had relatively free and unfettered access, even if that curtailment may be good for us.

I would suggest that the same analogy applies to the perks enjoyed by the Baby Boomer generation as exemplified by the fracas over franking credits at the last election, but I will leave that “OK Boomer” moment for others for the present.

This post is, after all, about the enmeshment of China in the global economy and the consequent interaction with Western business interests.

China entered the global trade system proper in 2001 with accession to the World Trade Organisation (WTO). In the lead up to it I worked in Government policy development on Biosecurity applying policy negotiated and administered under the WTO, so I was particularly interested in developments on this front. Moreover, as detailed in previous posts, I spent a month at a workshop in China and that was an eye-opener on how the Chinese Communist Party operates within its borders.

Not surprisingly there was much debate and discussion at the time about the pros and cons of China joining the WTO. The Tiananmen Square protest which was brutally supressed by the autocratic Chinese Communist Party occurred just a decade earlier, and human rights were very much a part of the public discourse. 

Business leaders were keen to suggest that leaving China isolated would not help on the humanitarian element, and in every discussion on the topic proponents assured that economic development of a nation typically goes hand in hand with increased civil freedoms.

Of course the potential to access a market of 1.3 Billion people – initially as a market of low-cost labour, and then as a consumer market – was tantalising to the business elites.

China joining the global trading system under the rules governed by the WTO provided some structure to their entry. Unsurprisingly, though, as is the case for all countries operating under the rules-based trading system, these changes created domestic and international political pressures to be managed by the Chinese Communist Party leaders.

The rapid enmeshment of China into the global economy, and the pressures that this was causing for their leadership, is made clear in “China in the WTO: Past, Present and Future“, a paper by China’s Permanent Mission to the WTO to mark the 10th Anniversary of it’s accession (accessed 2/12/2019). The report contains many graphs displaying impressive growth rates and in the text concerns held by domestic and international stakeholders are listed.

However, this quote from HU Jintao, who was Chinese “Paramount Leader” for virtually all of those 10 years, shows that the expectations of other WTO members, and especially the Western democracies, were well understood by China:

China’s accession to the WTO is a milestone in China’s reform and opening up, bringing us into a new era to further open up. To join the WTO was a major strategic decision based on our comprehensive analysis of the situation at home and abroad in order to push forward China’s reform and opening-up and socialist modernization drive

I count 3 uses of the phrase “open/ing up”!

My reading of the business media suggests that there has long been an understanding that Western businesses have felt that dealing in China and with Chinese businesses, often at least partly owned by the Chinese Communist Party, has been difficult and that China has been flexing its power to obtain significant advantage for its interests.

It has long been suspected – some might say an open secret – that the Chinese Communist Party has presided over a significant espionage effort aimed at foreign business interests and at foreign government institutions.

Occasionally when it wanted to exert pressure for a particular reason, or in response to being called out for example for human rights violations, the Chinese Communist Party would have a citizen of the country to which it wished to apply pressure arrested and imprisoned (like the Australian Rio Tinto employee Stern Hu who spent 9 years incarcerated in China) , or would use some other measure such as introducing a go-slow on shipments for a major export (such as Australian coal) or give directions to its citizens via the state-controlled press to boycott certain products .

The machinations of the WTO could not handle the breadth of issues that countries confronted when dealing with China, and were slow-moving on issues covered by the formal trade rules it administers.

Increasingly the question of whether China should continue to be considered a developing country, and enjoy certain special conditions under the WTO rules, when it had become the second largest in the global economy, and was displaying significant power which it leveraged upon other nations, was raised especially by the United States.

The carrot that existed 20 years ago remains, however, and so western businesses have been prepared to accept these disadvantages for some gains, and the foreign policy agenda of the Chinese Communist Party ensured that many developing and even developed economies were enticed to partner up with China on infrastructure projects through major programs such as One Belt One Road (OBOR). 

To many observers these projects appear not to be just about engendering good will and to further business linkages, but as a means to extract greater leverage over nations to progress the Chinese Communist Party’s agenda, especially those that are vulnerable and in need of capital for development. Even long-struggling Greece, the gateway to Europe, has become an eager partner and has accepted Chinese funds for 16 projects (accessed 1/12/2019).

Within countries, such as Australia, there are differing views on the desirability of joining these projects and consequent agendas, with some states including Victoria and Western Australia having joined up to gain financial advantage, while the Federal Government is more circumspect as shown in the conclusions of this briefing (accessed 1/12/2019).

China’s wielding of this economic statecraft strategy derives from several collocations. On the political front, since late 2012, President Xi has been promoting the ‘Chinese dream’   (中国梦), involving the ‘great revival of the Chinese nation’. Such revival requires a restored global position and identity for China. Earlier iterations of OBOR involved the catch-phrases ‘common development’ and ‘win-win cooperation’ to characterise the relations between China’s development and that of its neighbours. China also promoted a ‘China-ASEAN community of shared destiny’ (中国-东盟命运共同体). But these smaller initiatives have burgeoned into the Eurasia-wide OBOR, bringing into play the PRC’s massive capital reserves—both state and private—achieved through 40 years of rapid economic growth, and offering an outlet for the vast excess production capacities which exist today in China.

Regardless of the credence which one assigns to the various interpretations of the OBOR initiative, progress thus far makes it clear that as Australia becomes increasingly tied economically with China, there is a need to maintain a close watch on the progress of the OBOR initiative globally. It also suggests that Australia needs to adopt a more economically and strategically prudent attitude in determining how the Australia-China economic relationship is to further develop.

Note especially the concern that this agenda has taken a turn under current Chinese Paramount Leader Xi XinPing who also has concentrated power further by ensuring that he will remain in charge as long as he chooses in his promotion to “Core Leader” status in 2016.

It should be noted, however, that this must have always been understood by Western democracies to be a non-trivial risk under the autocratic system.

As economies became more and more dependent on integration with the Chinese economy, as a market for goods and suppliers of cheap imports of goods or components, Western politicians have became increasingly beholden to the vicissitudes of the Chinese economy and ultimately the Chinese Communist Party.

While China’s autocratic system frees their leadership from the concerns of securing the re-election of their party at frequent intervals – and can thus set in place genuinely long-term strategy – the Western democracies have become increasingly consumed by short-termism in the age of media saturation. 

These factors have been a significant advantage to China, and consequently it has become so intricately enmeshed within the global economy that it would hurt many Western economies significantly for this to be undone or at least reversed to any significant degree.

This is, however, most likely what the Trump administration has in mind, and I consider that it most likely will be made necessary by the reluctance of the Chinese Communist Party to either reform or cede the ground that it has made in this process.

What is more, I suspect that Donald Trump was speaking accurately when he said that he has been told in confidence by some Chinese that Chinese Communist Party had been surprised by just how far this process had been allowed to progress without it being checked. It is a testament to just how short-term our Western politicians have allowed their horizons to become.

In hindsight, what should have occurred as China entered the Global economy is that Western democracies, led by the US, should have ensured a regular series of gateways be instituted to assess China’s progress at “opening up” with the opportunity to cut back its involvement in the Global economy when milestones were not met.

This is essentially the system that is now being set up by the US in relation to assessing annually whether Hong Kong’s autonomous status is being genuinely met to earn the special conditions that the region enjoys and from which wider China gains significant benefits.

Below is a graph which shows the concept of how this might have been applied as China entered the Global economy (the blue line), with regular gateways which, under this example, led to its continual engagement with the Global economy being knocked back at each gateway when it did not achieve the milestones required of it to genuinely open up.

The other (grey) line on the graph is a conceptualised representation of how China has been relatively unimpeded in its integration into the Global economy such that it is now heavily enmeshed.

The dotted arrow downwards from the latter line towards the former is essentially what is in progress right now as the US, initiated by President Trump, but with support on both sides of the aisle, begins the process of making China accountable to the implicit and explicit promises that it made on opening up in return for the opportunity that it was given to develop its economy.

The only question is just how far that arrow will extend downwards, and that will depend on a multitude of variables relating to domestic politics and geopolitics which are difficult if not impossible to predict with any certainty. It could remain above the stepped line, it could approximate it, or it could overshoot to below the stepped line.

To this point the Trump administration, led ably in this respect by Peter Navarro, Wilbur Ross and others who have done an excellent job at containing the powerful business interests from throwing a sugar high ‘tanas tantrum and mounting a campaign to maintain the status quo which in the short-term benefits the shareholders and executives of those businesses, but not so in the long term, and are a serious geopolitical risk to the West if left unchecked.

Australians just need to remember back to how the resources industry was largely responsible for the deposing of a sitting Prime Minister in Kevin Rudd ensuring that his successor watered down the resources rent tax – which was necessary and would have allowed Australia to establish a sovereign wealth fund which would have been very handy about now – and thus protected their outsized and lowly taxed profits.

To this point the resolve of the Trump administration has been clear and the business elites have understood this to be an issue of national security which should not be challenged. 

If China becomes more powerful and even more internationally influential, possibly even the hegemonic power, while it remains autocratic and ruthless towards dissenters within its own borders, then the Chinese Communist Party is unlikely to select for an authentic leader of the calibre of Franklin D Roosevelt who will espouse a humane leadership of the world.

That ruthlessness, which many feel is epitomised by its recent introduction of facial recognition coupled with artificial intelligence technology in its major cities linked to a social score indicating the quality of each person’s “citizenship”, according to the principles espoused by the Chinese Communist Party, will likely be encouraged and exported to other nations.

Whether that resolve exhibited by the Trump administration will be maintained with an administration change is unclear, and certainly there appears to be a commonly held view that the Chinese Communist Party is prepared to wait it out.

On the other hand, the degree to which China has been allowed to integrate into the Global economy, the power that has come as a consequence and the wealth that it has accumulated through trade, appears to have emboldened the Chinese Communist Party.

I personally have a theory that much of the resources purchases by China has been for stockpiling. While analysts concentrated on “ghost cities” as a reason for why the Chinese economy was unsustainable, I simply saw this as a win-win for the Chinese Communist Party where it provided jobs and income to its citizens in building these cities, while it was an effective and non-threatening stockpile of resources which could be recycled if necessary.

It occurs to me that we have been in cold war for the last 20 years, but unlike the cold war that began at the end of WWII with the building of an iron curtain, the early stages of this cold war involved the building of Trojan horse.

The business and political elites were becoming progressively addicted to the free flow of sugar highs provided by Chinese Communist Party. Now that flow is being curtailed. However, one should expect to see periodic tantrums from the elites who will never give up the perks of their own power lightly.

This will be the major geopolitical issue of this century, and Australia is vulnerable on many fronts. 

As the Hong Kong protests prove, there are very many Chinese people who want freedoms, civil liberties and a confidence in the rule of law that is enjoyed in democracies. 

When I was at that workshop in China 20 years ago, it was difficult to make an authentic connection with locals not just because of language but because of the oppression and omnipotence of the Communist Party. I did, however, manage to have one discussion about Tiananmen Square and the person revealed to me that they had a cousin who protested and disappeared in the crackdown. They were never heard of again.

I, immaturely and naively, as a 30 year old, assured this person that we, from developed countries, cared and it was our hope that if China was to join the WTO that it would ultimately lead to greater freedoms for Chinese people.

This was one of those all too frequent in life fleeting moments forming a connection with someone who I will never meet again for our encounter was very brief. But I think of that conversation whenever I discuss this topic. As I said in previous posts, all of us international participants were also actively monitored at this workshop so I have never before mentioned this conversation online because I feared that there might be repercussions. This is the same fear that autocrats rely on to oppress ideas and opinion.

While we need to be careful of people who will seek to conflate issues to progress alternate agendas around race and ethnicity, as my essay “Xenophobia Must be Challenged For an Effective Response to Climate Change Inclusive of Global Population Growth” shows, that delicate juxtaposition should not prevent the open and warranted expressions of concern at an increasing expression of power by an autocratic nation which shows little inclination to significantly open up and reduce oppression of its peoples.

Traditional Chinese culture has been such a wonderful gift to humanity, and Chinese people have been so incredibly productive and innovative, it is my sincerest hope that authentic “opening up” of China can be achieved. If we, the developed world, need to pay a price in terms of reduced economic output for a period to achieve that, then it is a price that we should be prepared to pay to achieve a more united humanity and to gain another Rooseveltian true friend.

After all, we should not have allowed our elites to gulp so many ‘tanas over the last 20 years in lieu of genuine assessment of authentic and durable “opening up”.

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© Copyright Brett Edgerton 2019

SATURDAY, JANUARY 20, 1945

Reproduced here in full from The Avalon Project: documents in law, history and diplomacy, Yale Law School.

Mr. Chief Justice, Mr. Vice President, my friends, you will understand and, I believe, agree with my wish that the form of this inauguration be simple and its words brief.

We Americans of today, together with our allies, are passing through a period of supreme test. It is a test of our courage–of our resolve–of our wisdom–our essential democracy.

If we meet that test–successfully and honorably–we shall perform a service of historic importance which men and women and children will honor throughout all time.

As I stand here today, having taken the solemn oath of office in the presence of my fellow countrymen–in the presence of our God– I know that it is America’s purpose that we shall not fail.

In the days and in the years that are to come we shall work for a just and honorable peace, a durable peace, as today we work and fight for total victory in war.

We can and we will achieve such a peace.

We shall strive for perfection. We shall not achieve it immediately–but we still shall strive. We may make mistakes–but they must never be mistakes which result from faintness of heart or abandonment of moral principle.

I remember that my old schoolmaster, Dr. Peabody, said, in days that seemed to us then to be secure and untroubled: “Things in life will not always run smoothly. Sometimes we will be rising toward the heights–then all will seem to reverse itself and start downward. The great fact to remember is that the trend of civilization itself is forever upward; that a line drawn through the middle of the peaks and the valleys of the centuries always has an upward trend.”

Our Constitution of 1787 was not a perfect instrument; it is not perfect yet. But it provided a firm base upon which all manner of men, of all races and colors and creeds, could build our solid structure of democracy.

And so today, in this year of war, 1945, we have learned lessons– at a fearful cost–and we shall profit by them.

We have learned that we cannot live alone, at peace; that our own well-being is dependent on the well-being of other nations far away. We have learned that we must live as men, not as ostriches, nor as dogs in the manger.

We have learned to be citizens of the world, members of the human community.

We have learned the simple truth, as Emerson said, that “The only way to have a friend is to be one.” We can gain no lasting peace if we approach it with suspicion and mistrust or with fear.

We can gain it only if we proceed with the understanding, the confidence, and the courage which flow from conviction.

The Almighty God has blessed our land in many ways. He has given our people stout hearts and strong arms with which to strike mighty blows for freedom and truth. He has given to our country a faith which has become the hope of all peoples in an anguished world.

So we pray to Him now for the vision to see our way clearly–to see the way that leads to a better life for ourselves and for all our fellow men–to the achievement of His will to peace on earth.