Seeing Things in a New Light

February 2022

Phil Ruthven AM, Founder & CEO

There is an old saying: be careful what you wish for.  And thanks to Aesop’s Fables for that wise advice of over two and a quarter millennia ago in 261 BC!

An example in modern history was prohibition in the United States from 1920 to 1933.  Pietistic protestants and abolitionists had striven from the 1820s to abolish alcohol and slavery.  They saw success first with slavery which had been a human travesty of disgraceful proportions In America since 1619 and only abolished in law – if not in virtual terms – two and a half centuries later in 1865.  It is less well-known that the last country to abolish slavery was Mauritania as recently as 1981.  A long time for humanity to see the light, one can say.

But the abolition of alcohol was a travesty of a different sort.  Its implementation led to evils worse than those manifest with alcohol abuse. Over the 13-year experiment the increase in corruption, crime, job and tax losses, gangsterism, increased Ku Klux Klan activity, dangerous moonshine, drug use (heroin, cocaine et al) and hypocrisy are legendary.  At least the Temperance Society had the good grace to say they were wrong and sorry for their mistake afterwards when the legislation was repealed.

And yet do we ever learn?  Our mismanagement of drug problems in Australia today suggest that good intentions are often antipathetic to the right approach.  A case of too often, if unwittingly, ‘the do-gooders do bad, and the so-called evil doers do good’!

So, time to move to some other historic and current decisions and practices that have flaws; most if not all having been corrected, and the rest well on the way.

 The Gold Standard

For those who are not familiar with it, the gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. There are still people who believe it should be brought back as it is a disciplined financial base for a country and its currency and prevents runaway inflation.

Well, the last part is right as we see in the following exhibit.  After allowing for individual years of inflation and deflation in Australia from 1860 to 1914, and indeed back to 1800, the average was zero inflation. We too had been on the Gold Standard.   However, it was abandoned in the United Kingdom and Europe at the outbreak of World War I.  The Gold Standard prevented governments from printing more money to pay for the war; so, it had to go.

For a lot of history, silver and bimetals were more in use than Gold.  But gold became a default currency in 1717 when Sir Isaac Newton, then master of the United Kingdom’s Royal Mint, set the exchange rate for gold to silver. It was officially adopted in 1821 so, it has a history of 200 years.

But it was a flawed concept.  If there wasn’t enough new gold the economy couldn’t grow; and if the economy was growing, it had to go into deflation with the lowering of wages. And economic growth would come to a halt.  To fight and control inflation is to ignore the rule of scarcity.  If something is scarce, like land, and a fast-growing population wants it, the price must go up.  Ditto with goods and services in an economy

Nations like Australia have had three inflationary bursts over the past 107 years: World War I; World War II; and the Oil Crisis and Wage Explosion in the 1970s and 1980s respectively. And a handful of countries have experienced hyper-inflation due to appalling fiscal management; but they are exceptions.

Modern monetary management supported by good fiscal management has generally tamed the inflationary demon, recognizing that some inflation – between 2-4% pa – is healthy and helpful to a growing and productive economy.

In this regard, we saw the light a long time ago, even though there are still some deniers in denial out there.  Many of them are ‘gold bugs’ hoping or betting on a skyrocketing gold price.

National Debt

There is no doubt, debt can be scary to businesses, households, and governments.  The next exhibit shows how moderate and profligate individual nations can be.

 At that time in 2020, Australia sat in the bottom half of some 22 nations with only its household debt at a scary 121% of GDP (now even higher at the end of 2021), beaten only by Swiss households.  The debt incidentally is overwhelmingly mortgage debt not credit card or other loan debt.  National (government debt) was highest in Japan, by a long shot, followed by Italy.  Australia’s national debt was modest and is still very manageable after the massive spending burst during COVID 19 in 2020 and 2021.

But debt is not the bete noire, it is the debt servicing that is the challenge.  And with Bond rate at 1% or lower, that is not a danger at present. If interest rates rose too quickly, it is Australian households that would be in trouble, not businesses or the government (who can print money anyway).  Of course, government debt can be diluted by a burst of high inflation, as happened in the 1950s when, in a single year, we had 25¼% inflation which promptly diluted the debt to GDP ratio by the same percentage!  But governments can’t expect to stay in power if they do that often.  Once again it seems we have seen the light, although we are risking the household sector in 2021 with runaway house prices and the medium-term risk of higher interest rates.

So, we know it is debt servicing costs more than the debt itself that we must watch; and it is watching the most exposed of the three sectors that is important.

 Climate Change

Wishing we were not experiencing climate change, or that the dangers are exaggerated in depth and timing is to be an outlier these days if not a pariah.  The scientific evidence is too strong.

And whilst is true that Australia – with its miniscule 0.3% of world population and contribution to the Carbon emissions being only just over 1% – is not a significant component of the world challenge of zero emissions by 2050, such an excuse for inaction or being in denial, misses the whole point.

Australia’s energy mix is becoming passe and more expensive year by year.  Not to switch to new technology is to damn our economy yet again to a yesterday’s one, as we have done too often so far in this 21st Century.  We have become non-reformists in taxation, labour markets, creativity and venture capital, and parliamentary governance (an undemocratic upper house).  Why add regressive approaches to energy-generation by staying too long in coal and gas, and not whole-heartedly supporting the new age – and ultimately cheaper as well as cleaner – energy options. These include solar, nuclear, wind, tidal and battery storage.

(This is) A clear case for needing to be distrustful of staying where we are and being slow to change.  We must be more than careful with what we wish for in this regard.   And to not want to be a world player in this enormous challenge is a matter of principle, over and above the issue of economic regression and self-damage.

Political ideologies

The world is a weird and discombobulated place these days when it comes to politics and the prevailing dissatisfaction with national and state leaders. In Australia and globally.

Ruthven Institute doesn’t see the issues as all that complex, which is not to say there is, yet light at the end of the tunnel.

In the Industrial Age up to the mid-1960s in the developed world, the old ideological battle of capitalism and socialism came to a compromise.  Socialists gave up the silly (impractical) idea of nationalizing all the means of production, and the capitalists agreed that a bigger part of their gross profits should go to the government to create a fairer society.  So, we now have businesses paying the GST, payroll taxes, excise, income taxes and other taxes that amount to some $300 billion or half all taxes.  And collecting the PAYE taxes of employees.

The old terms of ‘left’ and ‘right’ no longer refer to that dialectic battle, but these days are euphemisms for progressive and regressive stances.

There is a new dialectic as suggested in the next exhibit, being rational versus emotional decision making.   And clearly emotionalism and popularism has been winning hands down.

Fortunately, this cannot last indefinitely, but the resurgence of rationality which Australia had in spades in the 23-year period from 1983 to 2006 under the Hawke, Keating and Howard governments may not eventuate until much later in this decade.

But I am confident the voting public will see the light, but only with very different leaders than Australia and the world are subjected to nowadays.

Gender roles in the 21st Century

 It may be appropriate to finish with one of the longest standing distortions in human progress: gender inequality.

 Male-domination is as old as the hills.  But not always thus.  Reputedly, it dates back mainly to the advent of farming and homesteading 12,000 years ago when brawn and testosterone were an advantage. This became a habit, custom and culture, but never a value even if most males thought it was.

Not much had changed until the end of the Industrial Age in the mid-1960s, and even going into 2022 it is still a work in progress.  Lower pay rates, other opportunity distortions and domestic violence are still extant.

The factors that gave males the advantage no longer exist, but the habits are dying ever so slowly, and many males still cannot distinguish this old habit from a value.  So, the diminishing proportion of misogynous men need be careful what they wish for or think is their God-given superiority.  The landing from the fall can hurt!

All humans are born equal as preached in the American Constitution, even though they left out obvious exceptions to that lofty ideal.

Fortunately, the progress being made in this new century is slowly creating a more level playing field.

But what many men wished would continue, won’t.  And what women hoped or wished for is finally happening.

Since virtually all wars have been started by males, a byproduct of the recognition and justice of the equality of women in society may well result in less power-based and testosterone-fueled war mongering by the male of the species.

We need to be careful about what we wish for.  It isn’t always right, sensible, fair, or workable.

 

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