Long weekend in WV, the desire for absolute federalism, Otto Niemeyer the flawed economist from the 1930's, Jack Lang and Joe Lyons. Property boom in Sydney not as a function of capital gains or negative gearing but of access to capital, plus; John Howard lies terribly it seems.

Long Weekend

We rented a cottage out at Berkeley Springs, West Virginia this weekend. It was a nice relaxing weekend. Berkeley Springs is a health spa town. My wife and her friend went off and did things like have massages, whirlpools etc. I mainly stayed in the cottage and read newspapers and books. I got a fair chunk of Chernow's book on Alexander Hamilton read. the cottage we had was done up pretty well, it was a big place, about 3500 sq ft and looked about 100 years old. The rooms were decored brilliantly. It looked the part.

When we were driving up there on friday afternoon, my wife kept mentioning Romney and how we travel along 522 to get to a mates place of mine in West Virginia. I didn't twig until then, that we were only about 40 miles from his place. So I gave him a call and we had a barbie (cook-out/grill-out) at his place on saturday night. It was great to see him again. He has a beautiful house on a wonderful location. In true West Virginian style, his family own a mountain and you have to go off the beaten path to get to his place. It was a scary trip back out, it was drizzling and the roads were humid enough that they steamed. Harsh on the headlight glare for the driver.

The yard of the cottage we stayed at was infested with poison ivy. My mates place up at WV was too. I pointed it out to him, he doesn't get rashes from it, so doesn't care as much. When we got back home, I was cooking on our charcoal grill and found poison ivy in our yard near the butterfly bush. Worse I was weeding in there when I found it. I got the poison spray and sprayed the poison ivy, then went upstairs to have a shower. Ugly stuff. It is not right where the plants are more dangerous than the animals. It is supposed to be the other way around.

Federalism

From the letter section in the Sydney Morning Herald on the issue of nuclear waste from Lucas Heights being dumped in South Australia. One letter writer wrote;

Mr Howard is also correct in pointing out the problems with our federal system. The sooner the states are abolished and we become one country, the better.

I think this is a failing of civics in Australia. The Federal Government largely controls the debates in the media and can make federalist comments that implant in the minds of Australians the idea that federalism should be absolute. The Australian Federal Government has been stealing away the responsibilities of the states ever since a federal parliament was incepted in 1901.

Sam Holden in a reply to the Education Reform article mentioned the "Income Tax Wartime Arrangements Bill" legislation the Federal Government enacted in 1942. That put the Federal Government ahead of the State Governments in order of taxation. War is bad, it concentrates and centralises power all in the name of expediency. Once power is centralised it is impossible to decentralise it again.

One of the points of contention in the "Blood on the Wattle" affair between Jack Lang and Joe Lyons when Australia nearly came to civil war in the 1930's was the NSW income tax rolls. Lyons wanted them so he could tax NSW taxpayers directly through the federal government and pay off the British loans directly. Lang hid the tax rolls and had them guarded by state militia.

Absolute federalism is bad. Federal government is not responsive to local issues, for instance when the Franklin dam issue was occurring, it was through state based activism that Tasmanian Greenies got their message heard, the Federal Government was unresponsive. An absolute federal government also reduces choice for people living. If I didn't like Joh Bjelke-Peterson's legislation, I could easily move to NSW and suffer Neville Wran instead, or Don Dunstan in South Australia. If I don't like John Howard then my choices are fewer, and I am reliant on getting a work visa for overseas which is far more difficult than moving interstate.

Sir Oracle Otto

A site I found recently was John Quiggin's , it is in the blog style of a paragraph here, a paragraph there. Not essays or dissertations. He some interesting entries though. One that caught my eye was on Sir Otto Niemeyer from an entry on July 11th, 2004 and entitled; "Words Fail Me". Apparently the Australian Graduate School of Management was announcing a new scholarship named after Niemeyer. Quiggin's view on this is;

This is an absolute disgrace, and all of these institutions should be ashamed of themselves. I doubt that anyone in Australian history has caused as much economic hardship as Otto Niemeyer.

Moreover, there was no question of error in his actions. Niemeyer knew that, if the British banks he represented were to be receive repayments of their loans (overvalued thanks to deflation) Australian living standards would have to fall, and unemployment would have to rise. He delivered precisely that outcome. He had previously done precisely the same in Britain, having been the leading advocate of the disastrous return to pre-war gold parity in 1925.

Who was Otto Niemeyer? He was a Director from the Bank of England sent out by the British capitalists in the 1930's to ensure that Australia paid back its war loans and public loans. The James Scullin Labor Government had asked the British Treasury for help on economic policy in depression, the Treasury recommended Niemeyer. Phillip Knightley wrote of Niemeyer's recomendation;

It it difficult to imagine a worse choice. Niemeyer was an establishment economist, educated at St Paul's School and Balliol College, Oxford, who had then risen rapidly in the Treasury. As well as being Director of the Bank of England he was the chairman of the financial committee of the League of Nations and a director of the Banque de Pays de l'Europe. He had all the beliefs and prejudices of a traditional City of London banker.

The prejudices became open when the speaker in the House of Representatives, Norman Makin said to Niemeyer that he was hoping that he found his visit "satisfactory", Niemeyer replied, "That depends on whether you do as your told." Almost Churchillian arrogance towards the inferior colonials, Menzies and Blamey were to hit that same arrogance only a decade later from Churchill and his Military staff. At a conference in Melbourne Niemeyer told the Prime Minister, Treasurer as well as the state Premiers and their treasurers what they had to do. Cut wages, stop public spending and pay back the money to Britain that was already owed. Niemeyer also told them to get rid of the Australian optimism, apparently the "she'll be right" attitude was bad for paying back British banks. The PM and Premiers went along with Niemeyer's recommendations, except for one.

Jack "Big Fella" Lang

Lang was elected to Premier of NSW in 1930. He pillorized Niemeyer during his election as "Sir Oracle Otto" asking if Niemeyer wanted Australians to live like Indians, half-starved and underpaid. Lang saw the depression as the failure of the banking system. The British banking system was treating Australia unfairly. Australia had incurred the costs of war during World War I to fight for Empire in Europe and the Middle East. Australia was the only nation charged for the upkeep of troops from the day they were established until they were discharged. Other nations like Canada and New Zealand were not charged once their force embarked for overseas duty.

Britain had also wiped out the war debts of many nations but was forcing Australia to pay in full. For instance italy owed 400 million pounds but was paying it off at 4 million a year over 60 years. France reneged on a 150 million pound debt and was not chased. Britain was charging the US three per cent interest but Australia was being charged five. Lang took the position that until the interest rate was renegotiated with a longer repayment period he was not going to pay Niemeyer or the Banks. There was precedent for this, the US had dropped the interest rate for many of the loans already given from four and half to three per cent for Australia. Knightley writes;

Lang told them [supporters at a rally] that it was a victory for those Australians determined not to allow the British to treat Australia like a colony. He announced that his government was no longer going to pay a single penny in interest to London until the bondholder agreed to re-schedule the loans. ... If this had been purely a New South Wales matter then the outcome might have been different, but the bonds had been underwritten by the Commonwealth government, and if New South Wales, or any other state defaulted on the interest payment, then the Commonwealth was obliged to collect it on the bondholders behalf.

After Scullin was outed and Joseph Lyons of the conservative United Australia Party came to power in the federal government, then the fireworks started. Lyons saw this as a capital vs labor issue and was dedicated to ensuring that capital won. Lyons was not wrong, the militia's that developed were largely left and right based. Militia like the leftist Constitutional Guard, the Workers Defence Corps, the Australian Labor Army and the ex-Servicemans Defence Corps. Then their were the militia of the right, the Old Guard and the New Guard. Their leaders being captains of the Australian banking and business communities. The Old Guard in 1931 had an organization and membership that was greater than the NSW Police Force. The Old Guard were also a large part of the UAP.

When Lyons was unsuccessful in getting the tax rolls and cash from the NSW Government, he saw violence as inevitable. He moved the Lighthorse to just outside of Canberra to defend it and notified the military bases in and around Sydney to prepared to put down a rebellion. Lining alongside the Army, Navy and Air Force would have been the New and Old Guard militia. It looked like being an unfair fight, until the NSW Police Force came down on Lang's side. The NSW Police Force had been issued rifles, ammunition, steel helmets and other fighting equipment to put down the depression riots. This coupled with the communications infrastructure of the NSW Police Force would have made it difficult for Canberra not to be isolated. In February 1932, Australia was an angels breath away from civil war between the federal government and the state of NSW.

There ended up being no blood on the wattle, the Governor of NSW, Sir Phillip Game removed Lang. Lang, like Whitlam thirty two years later, went quietly. Lang went with the words, "Well I'm sacked. I'm dismissed from office. I am no longer a Premier but a free man" Game had been pressured by the banking and business industries to sack Lang, but ultimately had made the decision himself after much wrangling. He asked the Chief Justice of NSW and the Colonial Office in London for advice but both treated the issue like a hot potato and wanted nothing to do with it. For civil war to happen, all it would have taken was for Lang to not acknowledge the authority of Game.

The Property Boom

Another wonderful article which shows up how useless modern mass media journalism is. This article entitled; "Furphies, Fairfax and democracy" and authored by Alun Breward. The article challenges the economic orthodoxy that it is low interest rates and government tax policy that is fuelling the property boom in Sydney. Breward compares the UK and NZ property markets, which do not have negative gearing, to Australia and finds the boom happening there as well.

So if tax policy and interest rates are not credible explanations of the housing boom, what is? It's probably best described as the Skase effect - the decision of the banks in the early 1990s to increase lending for housing.

Cast your mind back. In the early 1990s the banks were in deep trouble. Westpac nearly failed. The State Banks of Victoria and of South Australia needed rescue. Banks' loans to corporate Australia were stinking to high heaven. If anyone in business wanted to borrow from them, the banks ran a mile. As Reserve Bank Deputy Governor Stevens observed in the speech quoted earlier, banks had only one place to turn - lending for housing to householders.

The results were fantastic. By 31 October 1998 the Australian Financial Review was writing that the 1990s had seen the greatest real estate lending boom in the history of this country and had been "a golden era for big banks".

Breward is arguing that the largest component toward a hot property market is not the cost of capital, but the access to capital. Back in the 1970's a bank would not loan more than what could be paid back within 33% of the take home household income. Now banks in Sydney regularly lend with 50% of the take-home household income going to pay for mortgage. In the US there are loans that are fixed interest for a few years and then whatever the market is. It means that people with no down payment can buy an expensive house.

John Howard Lies

A website dedicated to exposing the lies of John Howard. It is called; http://www.johnhowardlies.com/ . A memory hole is needed for politicians and mass media. They say anything from day to day and there is no long term accountability for their "of the moment" bullshit.

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