I’ve written a few posts about the pervasive slothful induction with regard to Islamic terrorism among various community leaders, and I expect that there will be more in the future, as we seem to be far from the point where they are obliged by necessity to put their wishful thinking aside and face the problem squarely.
Another area where I’ve noticed significant slothful induction is with regard to property prices in this country.
The situation is truly astounding and unprecedented, as these charts makes clear – have a look at the chart for the real home price index. Forget about a ‘disaster in the making’ – it’s well and truly made. The only question is when the bubble bursts.
A number of people have been writing philippics about this issue, notably the team at Macrobusiness, Craig Peacock at Who Crashed the Economy (thanks for the chart), David Collyer at Prosper Australia, and most recently Lindsay David at Australia: Boom to Bust. More recently, Chris Joye at the Australian Financial Review has lent his shoulder to the wheel. Overseas, Garth Turner has been drawing attention to a similar problem which has developed in Canada.
Unfortunately, these people are at the margins of what we might call the Econocracy. With the exception of Chris Joye, they have no voice in it. The people who should have taken notice many years ago and taken action to ward the problem off are those at the Reserve Bank, the Treasury, the Prudential Regulation Authority, and the banks, as well as government ministers. But rather than take action against the growing problem, they have either denied that it is a problem, or spoken against it in measured tones, or actually encouraged its growth.
The refrain from the ‘great and the good’ seems to be ‘not a problem’. When combined with the evidence of one’s eyes, this is a strong marker of slothful induction. I won’t hazard a guess as to whether its root is genuine ignorance, or fearfulness at being seen to rock the boat or be ahead of public opinion, or an attitude of ‘not my problem’. In any case, the public interest has been ill-served by it.
So it was with pleasure that I came across Susan Gosling’s comments in a piece on page 25 of the Weekend Oz for 4-5 October by David Rogers, ‘Cooling economy and ‘home bias’ leave many exposed’. Susan Gosling is the head of investments at MLC, and here is some of what she had to say:
“Virtually every asset is mispriced due to quantitative easing and near-zero interest rates in the major economies,” says MLC’s head of investments, Susan Gosling.
“We have been a safe haven in a world where central banks have deliberately taken away the traditional safe havens of cash and bonds. At the same time, we’ve had this China growth story.”
Now there are cracks in both – quantitative easing is ending in the US while China’s growth rate has slowed. “We have been worried about this for a long time and finally it seems to be happening but it’s still not fully appreciated,” Ms Gosling adds.
“We have a property market that’s extremely overvalued. We’ve borrowed a lot and bought a lot of houses, rather than productive investments. Australia is vulnerable – we’ve got very high levels of household debt. I can paint a very nasty scenario.”
You certainly can, Dr Gosling! And you can attach to it a significant probability of its occurring.
One thing that I would like my readers and students to gain is an ability to see into the nature of things. The economy and financial markets being such mercurial beasts, it is always difficult to attach probabilities to what might happen. But there are clever people out there – many of whom don’t advertise themselves through the mass media and the internet – who make strong efforts to understand economies and markets, so that they can make prudent investments which at worst protect their capital, and at best deliver them substantial profit. It is possible. And the first step towards doing so is to make a genuine attempt to see things as they are.
Slothful induction is the result of an inability or an unwillingness to see things as they are. A necessary consequence of this is that the slothful inductor can only be right by chance – the cards fall in their favour through luck, rather than through understanding, foresight and planning.
We are in our current position in part because of the slothful induction of key community leaders. For Ms Gosling and her clients at MLC, and for a number of others, this behaviour, and their recognition of this behaviour, has opened up a number of opportunities for preserving their capital and profiting from the fallout when reality hits and slothful induction is no longer viable. But that reality is going to create significant stress for many Australians.
As with denial of the nature of the current terrorist scare, slothful induction with regard to property prices will impose costs on Australia, with those costs borne unfairly by the more vulnerable in our community.