Greens Senators Half Right on Housing

Tasmanian Greens senators Nick McKim and Peter Whish-Wilson were correct to lambast federal Labor’s housing policy, especially the scheme of relying on some kind of investment fund (“It’s pretty simple … just build houses”, (The Mercury, 9 June, p37).

A monetary sovereign like the Australian government does not need investment income from a fund to spend, prudently or otherwise, but nor does it necessarily need tax receipts or borrowings.

As I suspect these Greens senators now know from its Covid-19 response, but are reluctant to say for fear of ridicule, the Australian government creates dollars from nothing via its central bank, not unlike the way commercial banks create Australian dollars when they lend to borrowers.

This whole subject is increasingly farcical as politicians deny the obvious: the Australian government has no financial constraint but instead has a real-resource constraint which limits spending.

The emperor indeed has no clothes although some journalists are obviously blind.

The real issue is what is a prudent amount of money creation at any point in time, and what is a prudent amount of total spending in the economy.

This has next to nothing to do with balancing the federal budget – which has rarely happened over the past century and more in most nations – but has everything to do with using resources on a sustainable basis.

The mythical budget constraint is something dreamed up by economists like the late Paul Samuelson who didn’t trust politicians with the truth about their ability to create money and spend.

He feared they would act like drunken sailors, tempted to provide bread and circuses to the masses to get re-elected, and therefore cause inflation. So he effectively lied in his textbook.

This led me to the creation of Williams’ Law (2023) which states: “A government will be wrong to the extent it conforms to the dominant economics that emerged from about 1975 onwards”.

Our federal monetary system does not rely on balanced budgets, or accumulating surpluses, as if the Australian government is a mere state government or corporation.

Where McKim and Whish-Wilson fail – at least in their opinion article – is to not situate the housing crisis in the broader context of sustainability. I expect the Greens to do better in 2023.

A sustainable society is one that (1) lives within its ecological limits (sometimes called our biocapacity); (2) enables everyone to meet at least their basic needs; and (3) continually strengthens democracy by limiting inequality and the undemocratic power of the extremely wealthy.

The current housing crisis is largely the result of unusually high population growth over many decades relative to suitable land for housing and the real resources needed to build houses and the accompanying roads, schools, hospitals, energy systems, sewerage systems, water systems, courts, jails, and so on.

All that infrastructure needs to be built, then constantly maintained, and then ultimately replaced.

The housing crisis can only get worse under current government settings, especially turbo-charged population growth that has nothing to do with our humanitarian obligations.

The idea of continual growth in both the economy and the population has brought the world to the edge of collapse, assuming we have not already gone over the cliff.

For instance, 3% annual economic growth results in an economy that is double the size after about 23 years and almost 20 times as large after 100 years.

That is the danger of exponential growth.

How about measuring our biocapacity and economic throughput – both at a national and state level – to see what real resources we can consume on a sustainable basis?

Or would the result be too scary and put an end to the Ponzi scheme of eternal economic expansion?

It is past time that politicians started focusing on improving human wellbeing via strong sustainability rather than engaging in a modern version of alchemy.

Stephen Williams is a Tasmanian journalist and author. He is the co-editor of the book Sustainability and the New Economics (Springer, 2022).