Following On

I feel compelled to point out the obvious, which is to say, my last post was in part facetious. And one part cynical, and just one part earnest.

Although open to the possibility to the questions asked having answers, I'm quietly confident they don't. Or perhaps loudly confident, as many people remind me that I've been talking about the irrationality of the property market for years. The truth is probably closer to over a decade.

However for most of the last decade, if asked 'when is the bubble going to burst?' I would have responded with very high fidelity something like this 'I don't know, the problem with an irrational market is that if there is no reason for prices to be as high as they are, there's no reason for it not to continue.'

It would require some catalyst, like China's economy tanking and sending a shock through the Australian markets employment wise. China's growth has been slowing for years though, but it isn't tanking. Frankly I don't care about the trigger and I never have.

What do I care about?

Go down to any intersection in the Melbourne CBD, and you will in fairly short order witness the following - 1. A person jaywalks, in a pedestrian crossing against the lights. 2. Another batch of jaywalkers follows behind them. 3. A car enters the intersection and honks their horn at the second batch of jaywalkers, at which point they look up and hurry out of the way.

I would almost gauruntee that it would happen, but Good Friday is coming up where the Melbourne CBD is populated almost solely by confused Asians walking past closed businesses. So there are no doubt exceptions.

But considering that 1-3 sequence, you can see that for all the shit president Trump takes for blundering into lies uncovered by the most casual of fact checking, it's that assuming what we want to believe is true is a very common human foible. Most people are shitty jaywalkers, and a shitty jaywalker isn't somebody who gets hit by a car and killed, it is somebody who effects traffic by crossing the street. Fuck, there are people who are shitty pedestrian crossing button pushers.

That second wave of jaywalkers though, that happen on a daily, perhaps hourly basis (I've never been that bored or academic) to get honked at by a car that they didn't see even though it's exactly where one would expect it to be, are beneath shitty. What error did they make? They observed the first jaywalker and based their decisions on what happened to them. They didn't look at the traffic. The first jaywalker may have, they may have just been lucky. It doesn't matter.

I just want people to learn how to jaywalk. It's simple, look in the direction that traffic comes from.

I imagine with home buying, jaywalking gets more complicated. There's FOMO, and incredible pressure to do as the herd does. That's why it's not even impressive if you answer 1 of my questions about real estate. It's only impressive if you can do all five.

The Australian Housing Bubble may not burst in my life-time. I'm happy to hedge against that position, I would describe based on this ad:



That we are entering a new era, where banks have tapped out people's incomes to afford housing, and we now need creative solutions, like getting a loan with a 'mate'.

The RBA appears to be acknowledging the housing bubble, along with the OECD and APRA. The RBA wanting an orderly 'correction' to housing prices.

I believe arresting an asset bubble without it bursting to be somewhat of a holy-grail, a unicorn. Because it assumes the reason people are buying property at these inflated prices, is not because they want the prices to keep inflating. It assumes that once people stop buying, the game isn't over.

The CBA's ad, implicitely confesses that mortgages are onerous. They are attempting to address the belief that 53% of their sample doesn't think they can afford the mortgages? What does that mean? They can't sacrifice the income required to repay a mortgage at these prices even if they believe that capital gains will continue. Half the herd, has apparently already dropped out of the stampede, and the CBA is promising creative ways to get you charging headlong in again.

It smells desperate to me. But that's just me.

And the world is crazy, as a friend pointed out to me last friday, that hipsters complain about not being able to afford housing anymore, while eating a $25 smashed avocado breakfast at a cafe.

But upon reflection, the state of the union is this. A lot of people are finding that if they give up on home ownership, they have enough disposable income to live a life of largess. Which given that it might be triple the cost to own a home as to rent it, is not really that surprising.

I don't know what comes next. I don't know how it works. The more I studied economics, the more I felt confident that economists know less than the people on the ground.

If you saw the movie adaptation of the Big Short, you may remember that one of the opening lines was 'this is the story about a small group of people who did something nobody else thought to do: they checked'

I'm pretty confident most people don't check. They don't look for oncoming traffic, nor take that extra step of looking both ways. Like Bertrand Russell's Christmas Chicken, what they check is that the farmer gives them grain every day, right up until Christmas when the Chicken gets cooked.

I'm told people just go to auctions, that's their fact checking, and they see bidders bidding up prices and extrapolate all of reality from there. They notice Chinese people and concoct stories of Chinese billionaire's stashing their cash in the ground.

But can money be poured into the ground? We dig coal and iron ore up from out of the ground, ship it off across the ocean and then take the proceeds and 'invest' it in land that doesn't have coal or iron ore underneath it. And that Coal and Iron Ore is gone.

But I'm beating up, and I have come to not respect atheists that beat up on believers. Having said that, I see it as no contradiction when I pick sides. And when confronted with the mysteries of the universe, I respect the side that says 'I don't know, and I don't know anybody that does know' more than the side that says 'I do know' or 'I know a guy that knows all there is to know and he told me that all I have to worry about is doing right by him.'

Thus, for the people that engaged in my Questions (they only really tackled q1) it bolstered my confidence that none of the questions have compelling answers that describe the way the world sits right now. I won't take the gamble others so confidently make, but I respect the gambler that knows they are gambling. I don't respect somebody who feels like they are being 'smart'.

Yes the market may never crash, prices may continue to soar forever, somehow. I'm okay with that, largely because a landlord provides no real value, I'm not ever going to be comfortable with being one no matter what it costs me financially.

Lest I become a braying property shit heel, that's all I'm intend to say on the matter, here, for the foreseeable future.

On Property

What do you know about Property? Particularly private property?

I suspect the answer to this question, will prove to be: nothing.

The foundation of my suspicion being, that I know nothing. Although this post has been on my 'to write' list for a while, it was as recent as yesterday that I watched developmental psychologist Paul Bloom's talk 'religious thinking isn't special' my relevant takeaway the prevalence of what he called 'double deference'. He defended a Republican Lynn Westmann's inability to name the 10 commandments in a Colbert interview despite sponsoring a bill to have them displayed in the Senate and the House. Just to be clear, he defended the inability to name the 10 commandments while still thinking them important enough to be displayed, rather than the proposal to display them. Simply because it is possible to believe something is important and valuable and true without understanding it at all.

Much like many people who believe that it's important to teach children the theory of Evolution and the Hot Big Bang etc. would quite likely not be able to explain these theories, and many may have a very misguided notion of Evolution, even though they feel it is important. Hence most of us will trust and defer that scientists do science stuff and that what they say is true and correct. And I should say, that if you are ever going to defer to an authority, let it be a scientific authority, because they are actually supposed to base their statements on experiments that are reproducible. Including photographs of the big bang. I feel the scientific community is the most worthy of deference by the lay, unless that scientist is, of course, an economist.

But you have probably done this with property, and sorry in advance if the one thing. The one decision you feel you have got right in life, was buying a property. It doesn't mean you're wrong, I'm just trying to establish whether you know anything about this thing you bought.

So here are my property Millenium Prize Questions, published 17 years late and with no prize money. The questions I can't answer myself. I would love it if you the reader had a go at these, and I'll have a go at them myself below. So in no particular order can you answer:

1. How does property make money?

2. How can 'house prices' increase faster than rents over a sustained period?

3. How can rents appreciate faster than wages over a sustained period?

4. What value does a landlord provide?

5. Why do banks lend money to people to buy property, instead of using those funds to buy property directly?

6. If property prices are to always go up, why does anybody need to get in to the property market?

notes: When I use the word 'how' I'm wanting a description of the mechanism, for example 'How did humans descend from apes?' 'Evolution' demonstrates no knowledge of evolution, this is a deference. Questions 2 + 3 address expectations, so while the answers may be obvious in the short term, I'm looking for a demonstration of knowledge as to how these occur over the long term. When I say 'value' I'm asking not for a description of services a landlord provides, but how these services are beneficial. eg, a cleaning service provides value not through cleaning the house, but by providing a service at a cheaper hourly rate than if I were to allocate the time to doing it myself.

In the time I have allocated to writing this post, both ASIC and the RBA have come out cautioning against a potential property market crisis. I've been a naysayer of property investment for years, as many of my friends disdain me for and may even avoid my company. But a catastrophic property market crash in Australia, while validating, would still be catastrophic. Many people I know and care about would be wiped out financially. Locked down in negative equity for decades.

If I had to describe what most people believe, I have only an impression, and it forms the basis of my suspicion that people can't answer the 6 questions above, as I can't. They simply don't think of them and it hasn't occurred to them. Even though they are aware of terms like cisgendered and have nuanced understandings Sharia law etc.

But I suspect the average property owner thinks houses make money from capital gains, and that landlords provide housing because they are smart and only suckers pay rent. Banks lend money because property must be a sound investment and house prices go up for some grounded reason. It is plain to see that they are.

And that's it. aka - people know nothing, but are literally willing to mortgage their lives at this level of understanding.

This post is effectively done. But my attempted answers are below. They took longer than all my VCE exams combined and they fried my brains in a way that school never has.

[Have a go, I have an economics bachelor degree and I can't answer these questions, but many people who don't have economic or financial qualifications are sufficiently confident to take out loans of hundreds of thousands of dollars to purchase a house that is mortgaged against repayment of the loan + interest.]

When you are ready or resolute that you don't want to attempt to answer these questions, here are my best attempts:

1. There are seemingly obvious answers to this, the number one being rent. Charging people some portion of their income for exclusive or shared use of the space. This just doesn't track with reality. So using my home suburb as an example, the median buying price is $AUD 2.2 million, and the median rent is $710 pw. Plugging these figures into a mortgage calculator with a 3.7%pa interest rate and 25 year loan period resulted in weekly repayments of $2614 pw. Deduct $710 (paid either as rent to the mortgage holder or realised as savings on rent for owner occupier) and the mortgaged party need to find a remaining $1904 pw to service their debt.
Thus rents can't explain how property makes money in isolation, because crucially if you were to do nothing else in my home suburb - the rental income would not pay off the loan. So rent in isolation is a no go. By comparison I understand enough of the share market to know that any company I look up on the exchange should have a price earnings ratio, which is the net profit made by that company divided by the net worth of all common shares issued. So you can get a P/E ratio of 20 for a company, this means for every $20 of shares you own, you get $1 back a year, which in turn means that it would take 20 years for the investment to pay you back, on the 21st year, you start making 'money for nothing' holding everything else constant.
Now this is complicated the only 'earnings' of a property are rent, and this figure is obviously Gross, because there's a bunch of taxes like land rates and maintenance costs and what not. But per year this rent income translates to $37,440 generating a P/E ratio of 58.76. Or it would take 58.76 years for the property to pay for itself, holding everything else constant. My mortgage calculator only offers a 30 year horizon, and I can't find one with a 60 year horizon to bring into line this P/E ratio with the loan repayment frame.
So I don't know enough, let's forget about mortgages and say that our buyer, not me can just buy the property in cash, outright. Then the question is answered, for an initial investment of $2.2 million, the property makes me $710 pw either in the $710 pw I don't have to pay in rent anymore because I live in the house, or from the rental income of putting a tennent in the house, assuming that both these situations can be held constant, then the house will have paid for itself in just under 59 years time.
Again, although ostensibly the question is answered, it still doesn't track with reality. For one thing the easiest way to guarantee income is to live in the house myself and realise them as savings, but that requires me not to move for 6 decades, and in 6 decades I will probably be dead. It also assumes I'm out there working in the real world and earning a lucrative income. If I were just to collect a pension (somehow) it would however ensure that I would get all $400 per week most pensions amount to. But I don't know the law as it regards owning a multi-million dollar property and collecting a pension.
There's a big difference between owning a home, and owning a biscuit factory. A biscuit factory makes money by producing biscuits and selling them, potentially to many many people, this could improve or decline over time but it is risky. A property only makes money by getting tennants, and in the case of owner occupied, as savings on rent paid. It is very limited in its ability to make more or less money. Furthermore, tenancy contracts are usually fixed agreements over a period of time and there's many conditions that need to be met to alter the agreement etc. A biscuit factory can vary it's production figures, prices, distribution channels with a much higher degree of variation. It can even relocate and alter it's shipping contracts etc.
There's one seemingly obvious way property can make money, that I haven't mentioned thus far - Capital Appreciation. and that is because, I don't understand it.
I mean there's a simple term for buying something expecting a return in capital appreciation aka movements in price - that is speculation. But we are talking about people my age and even younger speculating with hundreds of thousands of dollars they don't have. That I don't understand.
When I try to understand it through the framework of a P/E ratio, it looks something like this - You have a high price say $2 million, and low earnings like $500, this could be rational as a gamble if you have some reason to believe at some point in the future, the earnings are going to jump up dramatically, considered in isolation, for me to invest any amount of money, I'd probably want it to pay me back within 20 years, adjusting for inflation (of course) so I might sink 2 million if I had some reason to believe that $500 a week were to jump up to $2000 a week ($100k a year) BUT that would justify the price I paid to a prospective buyer, for them to buy it off me at a higher price - they would have to believe the income was going to increase even more than it had.
Here I would note, that this is about me and other market agents acting on beliefs about the future, and price remains a function of earnings - so I would initially purchase something with a high price and low earnings because that makes it appear overvalued, however I believe it undervalued because of information I presumably have about how the earnings are going to change. I can then sell it when the prices adjust however I would need to believe it to be correctly valued, or overvalued based on my beliefs about future earnings and my buyer (whom I sell to) would need to believe it to be undervalued.
Those are the conditions of rational speculation. I don't understand it though. Further complicating things is Efficient Market Theory, which basically says all information about future changes in earnings should already be factored into the price.
And this is where I begin to stroll into a black hole of my personal understanding. If you were to reverse engineer the 'information' that is fueling the beliefs about future changes in rental income that is driving the high property prices, then any property owner that contributes income above that of the rental income they are earning or saving from their property believes something to be true about those rents increasing in the future.
But this belief must be so widespread that the information it is based on should be just about common knowledge, furthermore these poor P/E ratios have been the case for 10 years plus in Australia so I should have observed by now the massive adjustment in rents and the stabilization of property prices. Being unable myself to explain the current high prices, nor explain why I'd expect future high prices or future rent increases.
I have a basis for capital gains making money off property based on anticipated positive shifts in rent but no evidence to support that. I can explain the basic model whereby somebody holds a property for so long the rental income pays them back, but that is highly conditional on somebody taking little or no mortgage out and needing some reason to buy property rather than shares in more profitable enterprises, like an owner occupier that can hold the property long enough to save enough on rent to wind up with the savings plus the asset for resale... I think, I don't know.

2. My best attempt at answering this is the anticipation model of capital gains, it makes sense to pay a higher price for a property if you think that rents will increase in a disproportionate matter. eg. You might be willing to pay 15% above the real value of the property if you expect rents to increase by 16% - or 15.01% whatever.
That's short term though, how could this happen over the long term. You'd have to be expecting higher and higher rents occurring successively. But that would only explain property prices increasing more or less in line with rents, but with periods where the prices may increase ahead of rents for successive windows. The P/E ratio of property would remain stable over time.
This is what EMT would predict, even with a 'new era story' like the population is increasing faster than the housing supply, or that Chinese/Saudi/Russian etc millionaires are buying up all the properties and other popular stories (rarely verified). This again would suggest that the market would incorporate these factors into property prices.
The only one that potentially gives insight is the foreign investor new era story, typically wealthy people trying to move money offshore by purchasing foreign real estate. Here they are simply looking at property to function as a store of wealth, or bank account. The motivation being to have money in a safe asset that they can convert back into cash should they need it. As such they may buy existing properties and not rent it, restricting the overall rental market. This may in turn cause a rise in rents as the rental supply diminishes. BUT the market has a new piece of information, the potential for those properties to re-enter the rental market and relieve pressure on rents, which means property prices should reflect this potential already.
Furthermore, to the foreign investors, price rises in the assets they hold must reduce liquidity, and they can't be relying on their asset further appreciating by more foreign investment in the market because it becomes tautalogical, or is it a truism.
If you will picture the financial advisor of this Russian Oligarch saying 'you should buy Australian property because you are buying Australian property, and the demand for Australian property is driving up the price, so demand more of it.' It can seem less circular when you take Vladimir Putin and divide him by the millionaire population of China, but even so, what are the Chinese millionaire's being told? The new era story that involves them? Buy it because you are buying it!
I can't explain how property prices are outpacing rents in growth over a sustained period of time. Just to hold steady as an 'investment' that means if your property value has increased 14% for the year, rents need to have increased 14% as well. I just checked and last year rents increased 3.8% in Melbourne (prices rose 13.68%). My brain is not capable of doing the maths, but for these price increases to be rational, and compliant with EMT, for every year property prices increase by 10% more than rents do, the rents need to increase more than 10% the following year. Like those compare the pair Australian Superannuation ads which is to say if you had a period where property prices increased 10% for 5 consecutive years and rents held constant, then the market would 'correct' by having the rents leap up by 61% just to get them in line with where they stood at the beginning of the 5 year period.
Under Australian law there are certain obstacles to that happening, there are limits by which a landlord can increase the rent on an existing lease and limits to how often this can occur. At any given time most of the rental market is not in transition, so you would need a shock to the system - basically all existing tenants deciding to move, break leases and negotiate new ones to have the avenue for such a drastic increase in rent. The other thing being that this would not quite be a musical chairs scenario - all those tenants would be creating a huge upswing in rental supplies. The market would also be anticipating no Government intervention to such a drastic increase in rents.
Given that that makes no sense, I can't really explain how over a sustained period property can appreciate faster than rents do. Particularly if property is being purchased on mortgages meaning that $1900 gap between rental income/savings and mortgage being repaid has to grow by 10% per year, making mortgages less affordable.
I'm even less convinced of my partial answers to question 1 having walked further through this phenomena. I can get an explanation of the short term - a shock in the market. But I can't answer that sustained part. I can't explain how.

3. So last year rents increased by 3.8% which is not insignificant. But wages increased nationally December 2015-2016 by 1.9 pc. So the phenomena does exist, at least in the short term. That it's been happening for a few years is a bet I'd be willing to take, though it may be me using an availability heuristic.
Anyway, if rents increase faster than wages, that means its eating into people's disposable income. eg. rent is $100 and after paying it the tenant has $150 left, if rent increases to $103.80 and wages increase $254.75 , so both landlord and tenant are better off the landlord by $3.80 and the tenant by 95 cents.
If you adjusted for inflation though, The landlord's position has improved so that they are wealthier than they were before (3.8% is greater than inflation 1.5%, which incidentally the RBA is worried is low, hence the cuts to interest rates) and the wages seemingly increased faster than inflation as well but 80% of that wage increase is captured in rent, so the reality for the tenant is that their income increased 0.4% so they are poorer after inflation.
But that helped, wages must be larger than rents, so a lower percentage increase in wages may yield sufficient money to cover a higher percentage increase in rents.
However there's a ceiling as to how much the rents can increase and be absorbed by tenants - I can't do the math in my head, but in the above hypothetical a 4.75% rent increase would be the limit.
It's an aside to this specific question, but such a rent increase ceiling would invalidate the Efficient Market Theory prediction that property prices are factoring in a massive increase in rents UNLESS, it is factoring in an even more massive anticipated increase in incomes.
Blah, where was I, oh yeah, There's a second ceiling though, should the first rental ceiling be exceeded, and here's the simple answer to the question - rent increases can exceed wage increases until they've eaten up the disposable income. How much disposable income is around is ambiguous. I mean if somebody has $150 spending money after paying rent, and utility bills and other overheads break down to $30 a week, we have $120 which is about $8 a day for food or something and lets say a person can meet their nutritional and caloric needs with $4 a day, so you can say half of the food budget is disposable income - the human tendency to consume at the highest possible utility level.
But the $90 is there for the landlords grabs, but no more. Afterwards the average tenants become unable to eat... technically you might be able to grab more, provided the tenants have recourse to charity - eating at homeless shelters etc. This would be called the process of 'externalizing' which is where your business model depends on somebody else picking up the bill, like the Church, the wages of volunteers and the budgets of NGOs. You could see employers feeding their employees to create more disposable income, which provided the business has cash flow to cover it, would be tax deductible, so it would be at the expense of the public in terms of government expenditure on social programs.
So the government or philanthropy could pick up the bill, to maximize a landlords claim to the income of individual tenants.
As it stands, having to get to this 'absolute' ceiling would take time, however even this plan is conditional. It requires almost mass coordination, so that a tenant has no recourse to pursue a cheaper lease or move in with their parents (basically to use market forces to ensure their rents stay low). It also presumes that the erosion of incomes won't reach a threshold where it becomes politically untenable to not regulate further rent increases, popular revolt, cancellation of debts and redistribution etc.
Which needs mentioning because my attempt at establishing a ceiling for disproportionate rent increases may have sounded cruel, brutal, unethical and unjust. However that's not a system redesign, it's basically the negotiation of a contract between two individuals we have now, it just requires a circumstances to be such that tenants have almost no leverage. To be skewered between not eating and living on the streets.  There's some credibility to such a skewer, given that upon living on the streets it is almost virtually impossible to maintain a job, so the tenant would be losing their income anyway - this points to another source of recourse for the tenant though, to sacrifice their job and collect social welfare. I have to confess ignorance as to whether a person with no address can receive welfare, but it should be acknowledged on the landlord's side of the equation that the real limit of disposable income they can eat into is probably at the threshold where holding a job provides no utility over being unemployed. An individual could obtain more leisure time while having equally no disposable income as if they are working and paying higher rents.
There are of course some tenants that have children, who cannot generate an income and thus are already eating into the income generating parent(s) disposable income(s), and such tenants probably cannot entertain the option of going homeless. But this just means there is less disposable income for the landlord to obtain should their tenant have dependents. But landlords may literally have the ability to take food out of babies mouths, by negotiating more favorable lease agreements.
Again, its a complicated and highly speculative exercise to imagine basically how society can absorb higher rents than wage increases over a sustained period of time.
But I'm beginning to get answers that aren't generally discussed. For example, if we assume that the property market is not facilitated by lending, then property prices can appreciate faster than rental income, because you don't need to be repaying the interest and principle over time, so you don't require additional income above and beyond the rent (or your own in savings on rent) and in turn you don't need your income to increase faster than rents do, because you have simply converted an asset into another (cash to property) so your personal income is irrelevant.
This does fit the new era story of Billionaire's arriving from outside the domestic economy and buying property without loans, however this only works for those Billionaires, and not for people who both live and work in the domestic economy.
Those working in the domestic economy need to be anticipating some future significant growth in wages (just as in the previous answer, property prices need to be anticipating some future significant growth in rents) in order to restore what economists call 'equilibrium' and we would subsequently expect that growth in rents would be some function of growth in real wages (adjusted for inflation) provided the market is efficient - in this case you don't have a significant and non-transitional amount of homeless people, and you don't have a significant and non-transitional amount of vacant housing.
Thus 2 and 3 are more or less the same. But you can human centipede them together to create a kind of nested equation - property prices need to be a function of rent - f(rent) if you will, and rent needs to be a function of wages - f(wages) so property prices become a function of a function of wages.
There's a caveat I have to mention as well, all my back of the envelope equations have been dealing with averages, and there's some chance that the variance might be more significant. Such that the median house price does not align with the median rent etc. and that average wages don't align with average rents, or property prices.
Even though it isn't an official question, let's entertain in the spirit of completeness a theory where most property is bought with home loans, and whether they are owner occupied or rented, the debt requires servicing with an income, at risk of defaulting and maintaining the debt while losing the underlying asset, or declaring bankruptcy and losing the underlying asset.
In which case last year property prices increased by 13.68% and wages increase 1.9%. Comparing a $55,000 annual wage and a $500,000 property the absolute amounts = $1,045 increase in income and a $68,400 increase in property price. More than 1 extra year of earnings and a difference of $80 in mortgage repayment per week (using the same assumptions 25 year mortgage, 3.77% interest rate). The wage increase of our property buyer before tax amounts to $20 per week. But they pay tax as well and using a simple tax calculator $340 of that $1,045 wage increase goes to the tax man, if they can't deduct it through negative gearing but worst case is that the effective wage increase our property buyer has to service the higher mortgage with is $13.50. So best case, $60 has to come out of their disposable income a week. I can't make a fair comparison to the increased burden on a tenant without recalculating the orange numbers into apple numbers. $250 income a week is not a 55k annual salary and $100pw rent is probably not proportional to a $500,000 property. But hopefully your intuitions are strong enough that it is going to be about a tenth of the sacrifice of disposable income for the tenant or thereabouts, aka a landlord is subsidizing your living arrangement in pursuit of the long term claim to the underlying asset.
Of course these changes only effect buyers, if the buyer bought the property for $500k two years ago, and it's valued at $568,400 one year ago, that doesn't effect their mortgage repayments unless they refinance and up their loan (effectively buying the property from themselves) which they have no incentive to do so, unless they need emergency surgery or to buy a boat or some shit. But it does mean that they can increase the rent by 3.8% (unless an owner occupier, in which case they would have to increase their savings) and their wages increase by 1.9% and thus they have more disposable income after deducting their mortgage repayments. They would probably be better off though just selling the house and realizing the capital gains, provided they don't then buy another property.
My brain is broken again, so I'm happy to throw in the towel on this one, and say I can't explain how rents can increase faster than wages for a sustained period.
Which is to say, I can but to borrow Nassim-Nicholas Taleb's terminology my explanation would 'fragilize' the economy if not almost all social contracts and almost inevitably shatter it.

4. Again there's a seemingly obvious answer, which is that a Landlord 'provides housing' however in contemporary society this isn't true, and probably hasn't been true historically. Developers and construction companies provide housing by erecting shelters. Architects too by a degree of separation. Hence 'providing housing' is a misnomer, the landlord by definition is leasing out their superfluous housing. Like if it was raining and I had two umbrellas, I can use one for myself and could sell the other when it is raining (a demand spike) or rent it during the rain.
But I am not creating an umbrella for other people's use.
A landlord simply owns a house, is that of any value? There are more concrete services a landlord provides, for example they have to take responsibility and upkeep of the property and fittings. They also absorb the 'risks of ownership' which may be the exorbitant mortgage repayments, a landlord may be subsidizing the shelter of their tenants.
On the question of maintenance though, before I tumble down a rabbit hole, is similar to an insurance scheme. Say you get a dental extra on your health insurance, resulting in an extra $1000 a year in premiums. Then you go to the dentist and have your cavities filled and discover that your $300 bill is now reduced to $230 thanks to your insurance. Is this of any value?
No, you paid $1000 to save $70. Suggesting you didn't do your research properly.
Now in my own experience and from anecdotal testimony, the maintenance services provided by a landlord are often neither timely or to a quality standard. Furthermore there's a compliance cost too, of putting in the maintenance request and then following up and then coordinating the repairs or maintenance.
Thus the question of value is how is paying rent for upkeep and maintenance services more valuable than not? Or, if you think as rent like a maintenance insurance - where if you need a plumber, electrician etc. you pay monthly premiums of hundreds of dollars and in turn get a free visit from a tradesman once or twice a year.
Let's keep in mind that a modest rent in my hometown of $160pw is $8320 per year, with a bond lumped on at the front end ($793). Yes you can get the bond back, but how many electricians and plumbers and how many fittings would you need replacing in 12 months to fork over $8320 to a middleman.
Of course, we aren't factoring in the savings of whatever it would cost to live in a hotel for a year, but that is because a landlord just buys a house. A house (or room + communal space) that is surplus to their own needs for shelter. Hence why doesn't a landlord simply sell the house to the people that want and/or need to live there? They in turn can then sell the house to whoever needs to live their after them.
This turns out to be a good question, if we go back to the hypothetical mortgage repayment of $2614 weekly mortgage repayments vs the $710 rent paid to the landlord.
Here the value kind of becomes obvious, the Landlord is paying an extra $1900 of their own income per week for the privilege of letting you live in the house that they do the upkeep and maintenance for. They only retain the rights to the asset if they manage to pay off their loan.
A landlord pays most of the rent to the bank subsidizing the cost of shelter for the tenants. This only works taking a very narrow view, and in this regard I guess when the costs of ownership are higher than the rents collected a landlord does 'provide housing'. by taking on the financial burden that the tenant my be unable or unwilling to.
That is an answer, however it doesn't work the moment you plug it into a larger context. Without which we aren't talking value so much as pure altruism.
Simplify. Let's consider 1 house 1 bank 2 bidders same salary, and to boot both bidders know that whoever loses the auction has to become tenant in the house living with and paying rent to the other as landlord. Neither party has recourse to live somewhere else, find temporary shelter, live rough etc. Now you could play out the auction in a state of ignorance, where neither party knows they have the exact same limit as the other, and do not know the other will have to rent, in which case the auction will play out like an 'eenie meenie' rhyme where whoever bids at their max limit will by default win the auction because both have the same. The loser of the auction then approaches the other about renting.
If we throw up some numbers, let's say the two bidders earn $11,001 dollars a year after taxes and expenses, they both can secure a 10 year loan for $200,000 at 10% fixed rate interest, for a mortgage of $220k, with annual payments of $22,000.
In which case, should the bidders pay top dollar for the property, the landlord can charge the other tenant $11,001 in rent (the max the other can afford) as they have no recourse. They then pay $10,999 of their own income to service the mortgage and per year the winner of the bid is $2 better off than the loser. The real winner of course, being the bank.
If the two people cooperated and agreed to bid the minimum reserve and have the tenant contribute slightly less than half of the mortgage repayments, you could have a system where both prosper at the expense of the bank (albeit the bank is already getting a 10% return) but relatively speaking both parties win.
But really, the Landlord does no favors to anyone by owning shelter that somebody else needs. They simply entitle themselves to rents. Sure the world is crazy at the moment when people are willing to pay far more for the entitlement to the economics rent than the economic rent will actually provide them.
What I can't wrap my head around though is whether the gap between rent and mortgage repayments is purely inflated by having a completely superfluous agent - here called a landlord - thrown into the mix. Simply put, if we didn't have a pool of competing investors buying up the rights to rent existing property to people who actually need it, would anybody pay for the service of having a landlord? Somebody they need to ask permission to make modifications and carry out non-urgent repairs. Somebody they pay a constant retainer for services that require no individual expertise or qualifications?
I can think of one very bounded circumstance where a Landlord provides value - for transitional life-cycles. Eg. Imagine somebody has to obtain tertiary education in a locale for a short period 3-5 years, that is not near their home or where their future jobs will be. In such a case, it may be worth paying rent to somebody willing to take on the upkeep of a property over the long term that you only require for a short time. The same may be said for temporary work environments.
There is however a conceivable alternative - which is to say, imagine a world where property prices are very cheap and property turnover is highly liquid. There is adequate housing near educational institutions so you simply buy the house for roughly the equivalent of a years rent, then sell it at the end of your degree for roughly the same price.
That would be called an efficient market, where the assets are owned by the people who need to use them and transferred easily when circumstances change, buyers match sellers etc.
There's no real value I can think of that landlords provide. I can imagine a world without them that would probably be much improved. There is a fake value that landlords provide and that is when it costs more to own a house than to rent one. - $2500 mortgage against $700 rent, but this value is artificial and I don't believe the enthusiasm for home ownership that I witness has any basis in altruism. I suspect that for some reason the landlord believes that there is somebody eager to pay an even higher mortgage that will compensate them for their losses through capital gains on the asset pricing. Why they believe this is the subject of questions 1, 2 & 3.

5. So in my above answer I talked about a 1 bank 2 bidders 1 house scenario. That kind of is the answer to this question, but think about it some more. Because if you believe there is an answer to question 1, that houses somehow 'make money' and that there is a good answer to question 4 that landlords contribute a valuable service that tenants willingly would pay for rather than simply own the housing the need and take on that service themselves, why wouldn't a bank just buy the property hold them as assets, and employ people to fulfill the valuable functions of being a landlord.
In a scenario where two people approach a bank and say they need a loan to buy a house they have to live in, and that they both can afford 11,001 in rent a year, but they could buy the house and rent out a room to someone else and blah blah blah. The bank could just buy the house for the cheapest possible price (given that it can deny the two bidders a loan) and that way would only have to make a minimal investment of it's cash reserves and could charge both parties the max rent.
So why would a bank choose to lend $200,000 to one or the other parties? To get the 10% interest? If the monopoly is sound though, the bank can use the market mechanisms to extract the lost interest payments via rent. They can only rationally loan what the tenant can afford to repay, so the only difference is in what they pay for the asset?
A bank would do this in such a scenario. Why wouldn't it do this in real world, messier scenarios?
I feel this is a really good question. If the answers to 1, 2, 3 and 4 are so plainly obvious to most people and I am particularly stupid. Why do banks lend money to plebs to buy homes off each other when they could use those funds to buy the property themselves?
Consider how safe the banks are though, under a mortgage arrangement. If you fail to make your payments as and when they are due you retain the debt, the bank can then repossess and sell the house and if that doesn't cover the amount owing you, or your guarantor still owe it plus all the legal and sale costs with interest.
Thus I imagine the reason why the banks are willing to lend money to people is because the underlying business model of home-ownership is unsound. Rents can't increase faster than wages, and house prices can't increase faster than rents over the long haul. So the banks don't buy, they lend. They lend money to people who sacrifice ever growing amounts of their disposable income, and live under ever increasing austerity to service the loans that grow faster proportionately.
The banks are confident to do this, because they are confident that encouraged by the increasing prices, more people will apply for even greater loan amounts. Hence the interest rates can shrink as house prices grow. The prices are sustained by people's income, salaries for doing things that are valued by the productive sector of the economy, then channeled into speculation - betting on price increases to make money through 'flipping'.
Consider that Melbourne house prices grew by 14% yet you can obtain a loan for 3.77% why are the banks willing to accept 10% less return per annum on money they already have?
The answer must be, though it would be very complicated to figure out, that that 14% can only be achieved by lending money to the buyers.
If there were only 4 buyers in Australia (the big 4 banks) or even only a couple of thousand, if buyers were institutional I doubt you would have $2.2 million price tags on properties that can only charge $710 per week rent. Assuming the house can be sold for $2.2 million after one year that nets a return on investment of 1.68%. This would not cover the interest paid on the savings the banks hold.
The banks would have an obligation to their shareholders (and creditors) to invest in asset classes that yield a higher return and that are considered lower risk, like companies that make things that can be sold. Industries that manufacture things that are useful (possibly the construction industry) or to buy properties at much lower prices than the current market.
Because you don't invest to break even, and an institution like a bank needs to beat the rates they are offering on cash deposited with them, while also providing for the liquidity gap (a property loan lasts for 25 years, whereas a person may draw on their cash deposits the next day - thus you need to reserve some cash to service withdrawels, you can't tie it all up in long term investments).
So instead, the bank loans money to people to buy at prices that transfer their income to the bank in greater amounts than if the bank was to buy at prices and charge market rents.
If the property market worked like that, property prices would move in line with rents. This doesn't happen. But if property was what you believe it to be - the bank would not lend money to consumers to buy the assets, they would just buy them themselves.

6. A banks willingness to loan is based on confidence. The worst thing that can happen to the bank is for the asset to plunge into what is known as 'negative equity' - where the asset price is not sufficient to repay the debt owed. The debtor has little to no recourse but to default or declare bankruptcy.
If house prices are always going up, though, the bank has nothing to fear.
Therefore, it doesn't matter if the price of houses just went up by 14%, because we can expect them to be worth even more in the future. Therefore, the bank should always be willing to lend me as much money as necessary at any given time to purchase a property knowing that the price will continue to increase in which case, any chance of default can be written off by future growth in prices.
Under the circumstances that property prices always go up, there can be no such thing as responsible lending. If the bank is as confident as the consumer, there is no need for me to furnish it with a deposit, provide my bonafides, or work in a secure profession on a long term contract.
Should I lose my job etc. it doesn't matter, just sell the house, pay off the debt and eat the profits.
Sounds magical right? Because it is.
This doesn't happen, because there are no apparent answers to questions 2 & 3. But it is kind of the inverse of Keynes expectations theory. If people expect prices of goods to fall further, why would they buy today anything they can put off until tomorrow? This was a question that couldn't be answered by classical economists during the great depression, and similarly when you change it from goods to assets, I can't answer the question as to why there is any rational urgency to buy in to the property market if it is just going to continue to rise indefinitely.
A being of pure reason would say, as Benjamin Graham, student of Keynes and teacher of Warren Buffet pointed out - if an asset is always going to rise in price then it's value is infinite and it is effectively priceless. Vis a vis, any price of something that always increases in price is a good price. Even a bargain price. So why buy today? If you can afford your rent or whatever current living arrangement you have. Then just chill. It doesn't matter if you buy today or tomorrow, or the next day. Time period n+1 will make you money. So there's no need to put a foot on the ladder of an escalator that does the climbing for you and continuously. The very fact there is any liquidity in the property market at all suggests that property prices can go down.
Perhaps the real question is, how devastating is the difference between something that always goes up and almost always goes up?

On Terrorism

I don't truck with 'Islamophobia' and by virtue of the fact that I don't believe Islamophobes exist, the question of whether or not I truck with them is kind of moot in my mind. Let me just say, I'm pretty happy to be cast out of the kind of groups that rally around identifying Islamophobes, and am equally happy not to hang around with people that dedicate their psychic energy in criticizing Islam.

Upon close examination of both my pre and post September 11 life, I feel the evidence suggests that I don't need to have an opinion on Islam at all.

But when Bill Maher challenges his real time panel and 'fellow liberals' to name a non-Muslim terrorist attack and they say 'the IRA' and he says recently, and they say Timothy McVey or that guy in Norway or Sweden or whatever who shot those people at the camp, and Bill Maher says whatever... or Sam Harris... I'm not even aware of what Sam Harris has been saying recently. But much of his writing from and since the End of Faith, has been as far as I can paraphrase and speak for him, which is not very far - that the consequences of a faith based nuclear attack are so catastrophic that ending religious belief is an emergency and priority number one is Islam.

However In the last 7 days prior to writing this post, an alleged terrorist drove a car onto a pavement killing 4 people and injuring something like 40 people (I haven't checked the details, if you didn't deduce that already)

I was told by my parents that Prime Minister Malcolm Turnbull had seen fit to make a statement regarding the incident about terrorism and what it means for the world...

My thought was - how much is this going to cost?

And not just in financial costs. The loss of personal freedoms, civilian and armed forces casualties in reinforced commitments to combat 'terrorism' through state-based warfare...

There is also a strikingly linear trend among "weaponized vehicles of choice" from Planes 15 years ago to trucks last year to a car in Westminster district last week.

Similarly the direct casualties from these attacks have dropped from almost 3000, to 86 in Nice, to 12 in Berlin, to 4 including the perpetrator in Westminster.

Does this mean I'm going to side with the conservatives and say the War on Terror is being won? No.

The war I would say, in terms of military action will go down in history as an ill conceived and costly exercise that almost certainly exacerbated terrorism. But the ordinary learning has probably been quite effective, a September 11 style attack, was probably impossible to replicate as of September 12th, 2001.

Not because W shocked and awed the residents of Afghanistan but because flights were grounded, temporary additional security measures were taken, and then further airport security measures were implemented. If the attacks had been carried out in a manner where it remained a mystery as to how the World Trade Center towers, then yeah, as of September 12th we'd be in the dark as to whether further attacks could be prevented. But we know exactly how it got carried out, and it was easy to adjust.

I would presume for large public gatherings, some simple but tedious traffic control solutions have been implemented. Concrete bollards spaced at less than the width of a truck around pedestrian gathering areas comes to mind.

Full scale military warfare, waged against foreign states probably contributes nothing to making the public safer. I would say there's a likelihood that it makes domestic civilian populations more at risk of terrorist attacks.

Thus I feel, Bill Maher and Sam Harris are barking up the wrong bush. And it isn't due to an irrational fear of Islam, but the problem being more actuarial.

Dick Dawkins pointed out that it was a failure of modern media that when there was a contentious moral issue in the news, the talking heads summoned to comment on the issue often featured clergy and almost never a Moral Philosopher. To be honest, I don't watch enough news to verify whether this conforms to my own experience, except to say, I've never seen a Moral Philosopher consulted over anything.

But in all the noise around terrorism, the big omission to me, is that I never see an actuary consulted. To walk the public and the policy makers through an equation that is something like the expected value equation. Which is the expected value = (odds of gain) x (value of gain). And it is never too late to consult an actuary.

Which I haven't done, so this is just speculation.

Starting with the value of the gain of 'fighting terrorism' you need to start with what it would cost (or profit - lets be open minded) to do nothing. In this case, I'm suggesting that 'nothing' excludes, clean up of the property damage, treating the wounded, compensating the berieved and wounded, investigating the incident and altering policy and practices to prevent future attacks. By nothing I mean failing to round up some military posse, identifying some state to target in traditional state based warfare and launching a military response against that state. Doing none of that military off-shore shit.

So you have that, and then you calculate the cost of doing something, fighting terrorism - so the tax dollar and human cost of financing military action against a foreign state - I personally would include the casualties on both side. And then you also have to calculate the revenues the income, the gains of military action. Here I would like my actuary to specify whether the gains would be public or privatized, as if privatized, then the gains are 0 for the people financing the enterprise - namely taxpayers. But even if military action is a complete cost exercise it could still be in tax payer interests if it costs them less than doing 'nothing' as above.

So you take the cost of doing nothing - the cost of military action and if that = 0 or more, then our actuary can give the go ahead.

Now look at the tricky element 'odds of gain' here as at September 12th, 2001 there could have been genuine ambiguity as to how effective military responses were in lowering the public risk of domestic terrorist attacks. However I would dare say that over the past 15+ years, the odds of successfully eradicating terrorism or militant Islamic groups via military action would have been significantly revised.

I speculate that looking at the cold hard data and intelligence - the probability might be zero and may well be negative.

Now if you don't find maths interesting, let me quickly turn the crank on the expected value sausage machine - say there's a raffle with a total of 10 tickets, and tickets cost $10 each and the winning draw wins $2,000. Our E(x) = 0.1 x 2000 (one in 10 chance x $2,000 prize money) such that E(x) = $200. This means even though there's binary outcomes (you win or you lose) if you played this game enough you would expect to win $200 for every $10 you spent on tickets. This would literally be true if you bought all 10 tickets, holding 9 losing tickets and one winner.

The key thing being, in most expected value equations, the expected value is somewhat less than the best case outcome.

Fighting terrorism may well look like this: E(x) = (0 or less probability) x (some negative number)

Here our actuary would probably apologise, but say 'it costs you more to react than you gain by it, and should you react it would make the situation worse not better. To put it in terms of a raffle, it costs $10 a ticket and there is no prize money, all tickets are drawn and you then receive either a fine of $3,000 or $10,000 and maybe somebody you know and care about gets killed. My advice would be not to buy the ticket.'

This is not so unusual a situation, if somebody on the street calls you a wanker, then beating the shit out of them will make everyone's lives worse, not better. So most people do nothing. Situations like this are so common we have a word for a attempting to sell someone a raffle ticket they can only lose by should they buy it - that word is 'provocation'

Hence, post Westminster attack, where 2 civilians were killed, 1 unarmed police officer and 1 terrorist, I wonder how much this is going to cost Australian taxpayers, Australian armed forces, and Australian citizens in terms of personal freedoms. Especially given that two months earlier a non-terrorist man killed 4 civilians by driving his car onto the pavement in the Melbourne CBD including one child. Judging by the name of the driver, he is of Greek ethnic descent - I'm guessing he will simply be charged and prosecuted as an individual, with little to no chance of any meaningful regulations or state based warfare against Greece or Macedonia and thereabouts undertaken.

And, I observe, all these are acts of commission, that is the thing about terrorism.

I am no longer, and frankly, never have been scared by the prospect of being caught up in some terrorist act as I go about my daily life. Whether I am running a marathon, working in an office building, shopping at a market, taking the train or walking on a footpath. The odds are just much much lower than being killed by a driver opening their car door into the path of my bike. That is something I am scared of, and would welcome a change in Australian law to implement the 'Dutch-Reach' as a failing criteria of the drivers license test.

What stands to kill vast numbers, if not the entirety of Human civilization is climate change. Here the 1st and 2nd most powerful religious ideologies of the world make Islamic Terrorism look laughable.

The first and hardest to tackle is the widely held belief that corporations are people who need to be kept happy. I don't know how to begin tackling this one.

The second is the cluster of varying denominations of Christianity, clearly the most economically powerful, resource and territory rich of all the worlds major religions.

And here, let me shock you back into cognitive thought by asking, upon receiving a complaint from a parishioner that they or their child had been sexually assaulted by the clergy, why was the matter almost never referred to the police?

This question was the subject of the movie 'Spotlight' where they actually decoded the Boston Diocese' cypher for priests that were alleged to have committed sexual assaults, in publicly available directories.

Why when it was a statistically significant phenomena (6% by my recall) did the Church not adopt a policy of handing these men over to the police?

My answer is speculative, because thus far all I've heard as far as admissions of institutional guilt are things along the lines of 'we were more concerned about the scandal than the victims' or thereabouts.

my speculative answer being - 'moral authority'. It is easy to forget that the people who go to Church are there to here somebody speak as to their knowledge of the all-knowing, benevolent creator of the Universe.

It is an extraordinary claim, that you have expertise on the will of an all powerful and benevolent God. Implied in this is that not just anybody can do it.

But if it turns out that your rigorous recruiting method to identify those qualified to lecture others on what it is to live a good life and earn your place in heaven, can be infiltrated easily by somebody who likes to rape or otherwise assault children, it looks like your system doesn't work at all.

And so, Climate change. If you are one of the world's richest institutions, and you've been telling a bunch of hairless apes who walk in regularly and donate what little they have to the upkeep of your institution that they are the ultimate creation of the one and only creator a benevolent god who keeps you at the center of the Universe and sends floods to punish people for sin and decides who will win wars and so fourth...

You are practically obliged to deny that climate change needs addressing. Because God wouldn't let that happen, the book of revelations tells us how it is all going to end, and nothing in it says that burning fossil fuels (because fossils can only be 4000 years old anyway) and eating more beef than ever will gradually make increasing parts of the habit uninhabitable.

And these Christian's hold sway over who is elected and what their attitude is to climate change and environmental regulation.

Super douche Ken Hamm, has literally built an amusement park to try and lend credence to the Noah's Ark mythology.

Harris and Maher can give people like Ken Hamm a hard time, Bill Nye probably has done a better job, but where it is poised, Christianity is far more dangerous to the human race than Islam is. Christians already have the nukes, and the nukes are of little concern compared to irreversible damage to the ecosystem.

A nuclear winter sounds bad, but to my understanding this is why there is international support for the nuclear-non-proliferation treaty. There is nowhere near enough support to ensure the economies of the world clean up their acts.

So I guess, consult an actuary, because the expected value of fighting climate change may well be 'everything we have'.

On Privelege

I have my suspicions about "privilege". But since I rarely get told about my privilege it isn't really a pressing concern for me. But I will say this for privilege as a pejorative - a man doesn't have to move past 16. And 16 is just an estimate, an intuition I've held for a long time when as a younger man by a decade I noticed how sophisticated office politics isn't. Furthermore, just how much dead weight corporate culture is laden with are generally people employing the tactics that made them successful at 16 to collect a salary.

After rubbing my eyes and eyebrows for a moment in thought, the explanation I would furnish for why this is, and why it is problematic is very complicated, but the result is very very simple. You get essentially juvenile teenage boys dressed in ill fitting expensive suits playing the part of somebody important who in the reality of the value chains of that organisation is completely expendable.

Consider the 'heroes journey' in which an identifiable character known as the protagonist has a calling to leave the safety of home and go on a quest. they face some challenges and fail, get trained up by a mentor or whatever and then achieve some kind of personal growth that allows them to overcome the challenge thereby completing their journey to heroism.

The privilege that men both enjoy and suffer by, is that by removing those challenges that necessitate learning and growth, they don't need to. So my intuition that a guy doesn't really have to move past the development they achieve by 16 - is that I suspect by 16 most males enter the 'adult height' range. At that point people start to take them seriously, and really for many men, that is all you need. You don't actually need to validate being taken seriously - that's the privilege that I will speak out against.

Labor regressions have shown that height is the biggest determinate of corporate success, with 90% of CEOs above the average population height and less than 3% of CEOs under 5'7" (which means if there are 1000 CEO vacancies open in the world, my height would limit me to being considered for 100 of those positions) and its that kind of thing that has me say at 16 for many men, the struggle to be taken seriously ends.

And I say men, but I mean boys. Because the privilege allows them not to actually develop, or mature. People treat them because they look the part. Their achievements and qualifications are largely cosmetic. In Rudi Guiliani's darling days of post 9-11, I actually read his book 'Leadership' and in a fine example of where it doesn't pay to go ad hominem - he astutely pointed out 'many confuse polish with professionalism'.

Which is why, sitting in a car listening to my friend talk about his current occupation as a marketing consultant I did not feel him embellishing at all when he claimed his job consisted of 'telling 40 year old men they didn't know how to do their job' My own experiences cannot falsify the implied statistic. Which is to say, numerous men can get very far in life without ever having to learn how to do something actually productive.

Although the Vice media trailor for 'Hypernormalisation' got a lot of airplay on my social media hive mind, I don't know anyone to have actually watched it. The trailer itself though alluded to the phenomena of 'fake jobs' this is no particular insight, when compared to Keynes' observation that in the future one challenge faced will be actually finding things to do, made back early last century. There's also great articles on the subject like 'On Bullshit Jobs' and 'Driverless' on of all places, an art blog. But the hypernormalisation trailer did connect the important dot that your fake job exists to facilitate your real job which is to shop.

It's a wealth distribution problem. For example, if you owned a huge technological marvel that controlled all the fresh drinking water on earth. An entirely automated system, you would presumably be the richest person on earth. Rich enough to satisfy all your own material needs. In fact you wouldn't even need currency anymore. Because you could charge people whatever you wanted so you could just say 'make a dozen lamborghinis for me' etc. but you would only need the world's population to be very very small, to satisfy one despot's needs and the rest to basically subsist in the hope of overthrowing you one day or some shit. Most people don't dream of such a lonely world though, and hence you come across the consumer goods known as the 'commons'. I want my beaches to be populated by beautiful people in revealing costumes, laughing and playing with eachother, not ragged peasants trying to use crude evaporative techniques to desalinate some drinking water. I want to go to vibrant cities and relax in places where the social environment communicates relaxation to me. I want to stroll through parklands and see old couples taking loving walks together to fill me with hope.

So as a water despot, you distribute some income to other people, can't be everyone because you need to maintain the heirarchy you are at the top of, but also can't be too few. So why not just employ people like you, who identify with you and aspire to be you with generous wages and arbitrary work duties to appeal to a sense of fairness, that wages must be earned.

I'd contend this within the microcosm of corporations leads to the widespread phenomena of dead-weight juvenile middle manager men. And I don't mean juvenile in terms of pit farting and calling their friends wankers, and pulling on the hair of the girls they like (although for all I know, that shit may be happening), I mean juvenile in the sophistication of their politics - demanding performance using threats and intimidation, kissing up and kicking down. That basic shit of simply recognizing a vertical dominance hierarchy.

It is my direct experience that you can be a 40 year old father of 3 and not realise - there are different personality types, and different people hold different values. That you can negotiate deals rather than pulling rank. That opinions and speculations can be formulated into hypothesis and tested... etc.

So if we return now to despots, and think of a ironclad dictatorship, like North Korea. Dictatorships are cheap to run, cheaper than democracies. In a democracy you need to satisfy the basic needs of the majority of the population (or the crucial minority, as per how the electorates are drawn up) whereas a dictatorship only needs to satisfy the portion of the population sufficient to violently oppress the remainder of the population - aka the military, police, intelligence etc. It's not great for the flourishing of agricultural and manufacturing sectors, but it is very very cheap to run. Which is why Democracies would generally prefer to deal with tyrants than other democracies if they could.

Corporations are not democratic, they with very few exceptions top-down. The CEO can tell the Executives what to do, he Executives can tell the managers what to do, the managers can tell the Supervisors and the Supervisors can tell the people that do actual work.

Men can make it into the cushy administrative-managerial positions with all the skills they need to succeed at 16. And this hurts everyone. They are simply sufficient to oppress the frontline staff. Such that you can employ as few people as possible on the cheapest and least committed contracts. That is the efficiency aimed for on behalf of shareholders. And it is efficient.

If you can get 20 people on a minimum wage off the books while retaining your clients, then it is cheap to pay some sack of shit 3 times that wage to do nothing but kick failure down the line and fire staff underneath them.

In any industry I predict you'll find this, it's just how the whole thing is designed - profits are maximum when marginal revenue = marginal cost. Publicly listed company executives are obliged to maximise profits for their clients, so their job is to lobby in order to get fixed costs changed to variable costs (casualisation of the work force) minimize those costs (lower minimum wage, abolition of penalty rates) and maximize marginal revenue (higher output, voluntary overtime)

nature is very inefficient, and so is society. Middle management bloat is an expected phenomena and ideally, a good company executive could have a redundant number of talented executives practically on the shelves to take over for them at a moments notice. But instead the bloat is filled out by talentless men that have been promoted due to seniority, personal affection or relationships - cronyism etc. Reviews cursory and arbitrary, they may not even be qualified to do the job they hold.

This is a problem that bothers me. The solutions are simple, the political will is not.

The first is to shift the taxation base to land. Land as a catchall term for resources, not human resources but anything that is natures bounty or is access to publicly provided infrastructure. Namely taxing economic rents. I'll write about this in the future, but the magic bullet has been known for over a century.

The second, isn't simple, but it will certainly change things over night. That is AI. The moment machines can think they go from being capital to labor. That's the end of the great problem of automation. If a machine can introspect it suddenly has a choice between labor and leisure, and forget the AI singularity, there is little evidence to support that theory given that we don't understand human consciousness, the AI labor movement will be very confronting for our economy.

Anyway, I agree, in this regard privilege is problematic. The frictionless career paths afforded men, and tall men in particular are to the detriment of all, even the men who are primary beneficiaries. Because much like the laborer with the mindless manufacturing job held for 40 years discovering that the plant is being shut down, a middle manager with no real expertise and no real growth or social skills is just as likely to find themselves facing down the barrel of structural unemployment. They are fragile to economic shocks. They possess no real transferable skills, if any real skills at all. They are simply some kid who walks around telling smaller kids what to do. Often, I've observed managers whose instructions are completely ignored, because they lack the expertise to even determine whether their input is acted on.

Fuck those guys.

'Them' and 'Them'

What is a conservative? or right wing? or alt-right? how does alt-right differ from neo-con? and what of the other side, the people across the line, what is liberal? or left-wing? how do the progressives differ from libertarians? is there a difference? why can't there be both?

Most of these questions are uninteresting. Given that there are sufficiently uninteresting people in the world who have no doubt populated wikipedia articles I haven't bothered to verify the existence of with a synthesis of the scholarly history and discussion of the parameters of the nuanced differences between an alt-right or a neo-con or libertarian and progressive vs a new-dealer etc. It would be redundant for me to even bother answering these questions.

But I can share my simple definitions, that are my rules of thumb and inform much of my own behavior as it has quickly adapted. I don't need heuristics for dealing with anyone in my own camp. People in my own camp are like me, and much like the Quakers are not dogmatic and don't really proselytize. In fact, I can't really prove that anyone in my camp is in my camp, we don't tend to talk about it.

Conservatives

The defining psychological trait of a conservative is somebody whose identity is emotionally invested in the 'Just World Hypothesis'

Figuratively speaking, a conservative is somebody walking around in running gear with a medal hanging around their neck, and that medal means the world to them.

Some concession has to be made to the phenomena of medal-less conservatives though who do exist in surprising numbers and whose life's ambition is to obtain a medal just like those with medals whom they somehow admire. The only difference between the two though is whether they are positively or negatively emotionally invested in the Just-World Hypothesis.

Progressives

The defining psychological trait of progressives is an almost total ignorance and insensitivity to 'belief perseverance', even though they are almost certainly prone to it themselves. Thus behaviorally speaking a progressive expects people to update their beliefs as knowledge progresses.

Figuratively speaking (but bordering on literally) a progressive watches the latest episode of Jon Oliver's Last Week Tonight and calibrates their beliefs to whatever has just been presented.

Or if it's easier to picture, a progressive plays the role of Jerry in the Seinfeld episode 7-16 'The Doll' who informs Elaine that there's an electric toothbrush that is better than the one she has, and can't understand that she likes hers even though he's telling her that it's better.

So What?

You may notice that one is a definition of a broad-catch all political alignment - Conservatives or The Right or whatever whereas the other is a definition of a sub-genre.

This is because everyone is prone to confirmation bias. And if you are reading this you probably share my opinions, where you broadly identify as left-wing, don't particularly like right-wing politics but find many of your own friends annoying on social media who seemingly have the same left-wing orientation as you. These definitions aren't binding, they are simply the way I bet across populations even those bets are placed on individuals in conversations.

And that bet is that both are wrong. But how?

That is an interesting question, to gather the low-hanging fruit, Conservatives are wrong about a natural order, at the very least to the extent they are emotionally invested in one. Progressives are wrong about progress. Best illustrated by putting our two figurative people together.

So a progressive is watching Last Week Tonight on Youtube because it's free, and Jon Oliver does a piece on how some running race is rigged, black people aren't allowed to enter, nor are women allowed to compete against men for the greatest prize money but can only win 30% less and also don't have access to the same trainers, scholarships and what not. If they were born a woman but transition to being men and vice versa they are subjected to testing and not allowed to compete in the category they identify with as well as suffering public shaming and discrimination. Furthermore it is unveiled that many of the people who win the race cheat by breaking a bunch of rules that are inconsistently enforced and take shortcuts and handicaps that are inherited and what not.

Then this progressive goes outside to order some ethnic food for lunch and comes across a person they thought they knew well walking down the street sticky with sweat with a big smile on their face and a medal around their neck. 'Woah!' says the progressive to their acquaintance, 'I didn't know you were a Conservative?!' and they say 'Yeah, I just ran the race today, got this sweet Medal' and they hold it up high anticipating some admiring comments from this Progressive they thought they knew.

'That's disgusting, you know those races are rigged? and you probably cheated cheater. Cheating in a rigged race, aren't you ashamed of yourself?'

The Consevative retorts 'Hey, I worked hard for this medal, and maybe if you did something other than watch youtube and eat fatty ethnic foods you too would have a medal and you'd probably feel differently.'

And the Conservative goes and seeks their own kind to feel reassured and validated and the Progressive does the exact same thing. As we all do.

Hopefully most people would agree that informing somebody who had just completed a a Marathon that the race wasn't actually regulation distance or the supplements their coach had been giving them were actually illegal performance enhancing drugs is a dick move, but consider a capacity in which you are conservative.

Imagine a piece of evidence that supported a 'natural order theory' for example a population census data that supported a conclusion that white people are smarter than any other ethnicity, or a defended and peer reviewed doctoral thesis that found men are more creative than women.

Just in case you are panicking, to my knowledge no such 'evidence' exists to support any of these, but if you are a human being with an identity that leans towards a fair and just society with broad equality - chances are you felt some kind of resistance to the very exercise of imagining a piece of evidence that would convince you that all things being equal some group might have a natural advantage over you or you over them, or that your spiritual connection to the universe is actually a figment of your imagination, or that your migrant grandparents actually didn't arrive with nothing and build themselves up through grit and determination against prejudice but in fact arrived with abundant job opportunities affordable housing and were encouraged to migrate with discounted passage.

And I've had someone say to me 'I don't like evolutionary psychology because it's condescending to women' which is fascinating.

The book superforecasting has a good summary about belief perseverance and should be noted that psychological phenomena is not partisan.

The other great degree in which progressives make common naive errors is in failing to recognize progress is a spectrum, and that we live in a world in which some people alive today maintain the exact same lifestyle as humans lived 10,000 years ago. Such communities are not just goldmines for anthropologists, they are largely ignored by most people because people living in hunter gatherer communities have almost no impact on geopolitics.

But hunter gatherer tribes or stone age communities in the Amazon not only are not up to speed with Transgender issues, they perhaps never progressed to the stage of achieving transphobia, along with bronze working, fly fishing, finance, constitutional monarchy, germ theory and twitter.

And yet these often marginalized people whose way of life is under constant threat from environmental degradation, urban development and religious intolerance are as likely to achieve a real and meaningful life as they are unlikely to participate in combating Islamophobia on college campuses.

And what of conservatives? Why am I so confident they are wrong? I don't believe there is a natural order, nor do I believe that the ordering of our society is entirely arbitrary. Guns, Germs and Steel is a good place to go and have racist notions of a natural order dispelled (provided you are receptive to such a message) but the only tragic conservatives really are those that do not benefit from the status quo except psychically from believing that working hard will deliver to them a better life.

Conservatives who thus are not benificieries of the status quo are sad, and conservatives who do benefit from the status quo have little to no incentive to challenge the just world hypothesis. Except that wealth keeps concentrating, such that Pareto's 20% is itself carved up into 80-20 distribution from which we derive the 1% and even among the 1% you would be naively optimistic to assume the equilibrium has been reached.

But you'd note, I don't have to do anything about that. Conservatives are for the most part due for their come uppance, I just simply avoid their company because they tend to be dicks.

A Horse To Ride

Career going well? Be careful, or rather, ask yourself 'why?' I don't know why but for some reason the two consultants that wrote the book on marketing, namely Al Ries and Jack Trout 'Positioning the battle for your mind' I seem to recall writing a bunch of career advice into the end of a book about marketing. It could have been in the end of 'The 22 Immutable laws of Marketing' or whatever it was called, it's been a long time since I've read either.

But they advised an eponymous pony called 'A horse to ride' saying you needed a horse to ride. What they meant is, that your success needs to be bundled in with something that is actually going somewhere. If you can't ride a horse, you better hope you are a leech, sucking your fill from the dead and dying.

It's taken over a decade to understand just how important this advice is. You see, without trying to incriminate myself or anyone else. It is possible to observe people who are rewarded not for being good at their job, but doing what their management like them to do. Like a political candidate appealing to their voter base, does not actually need to be good at governance. Hopefully you can think of an example of that phenomena at hand, if you can't look at the track record of the American Republican party in the economic department for the past say... 4 Republican administrations.

But in an organizational setting you are probably more likely to stumble across this phenomena in a meaningful way. Because there's a business saying that goes a little something like 'what gets measured gets done.' I would say most junior managers interpret this in some tingly proactive way, rather than hearing a stern warning to be very careful about what you measure.

Unfortunately, if you are picturing the typical management type, you are probably not thinking 'philosopher' somebody who steps back, observes and theorises, questions why. You like me and most managerial literature probably envision somebody who gets things done. Somebody direct, motivated, disciplined, energetic and with good posture.

These unfortunately are not the people who say 'are these KPI's (Key Performance Indicators) the right ones?' for what does that even mean to most managers, the right ones. Most managers the KPIs are what measure their performance and therefore what needs addressing.

So let's step back all the way to the first paragraph, that very first question - is your career going well? You may be the top performer at a company that is hemorraging money - so is your career going well? Are you the captain's favorite able seamen on the Titanic? And then also, why? Are you very effective at cutting costs? That should be cause for concern. Cost cutting can increase profit in the short term but do damage to a brand that is very expensive to reverse. And yet you are being rewarded for doing expensive damage to the company reputation.

It's kind of fucked that it's impossible to know if you are incompetent or not, but it sucks even more if it is necessary to navigate life by being able to identify when the hand that feeds you is attached to somebody truly incompetent.

Sweating to the Oldies

Like Kanye West I'm a proud non-reader of books, maybe too proud. In fact... almost certainly too proud. But I have my workaround - and that workaround is called Audiobooks. I actually am a member of Audible.com and receive a credit every month in exchange for $$$. But though it may be a workaround, I still have so little interest in books that I'm now in the habit of allowing my credits accumulate until they can no longer be rolled over before I'll actually put any thought or effort into acquiring new books to listen to.

And it's hard in a world where there is often more to be learned about the world we live in by watching back episodes of cooking reality contests than there is listening to *respectable* news. Scarily listening to fake-news might actually become more informative. 

Anyway, in the month that followed the US election, there was a huge gaping behemoth sized whole in my life which was where to get information from. Currently I'm plugging that hole with the Roman Empire. Specifically Marcus Aurelius and his merry meditations. 

I tried googling for the exact quote and it didn't come up and I can't be bothered digging up my copy of 'The Bed of Procrustes' and finding where in it the aphorism I had in mind came from but it goes something like 'to get a true sense of progress consider that in 2000 years we've gone from Cicero to Sarah Palin in our standard of politicians. If you really want to scare yourself, extrapolate that trend out into the future.' and as a matter of interest this was written while President Trump was a completely unforeseen future.

Now I was told (via book, by I think Peter Drucker) that the entire administration of Pres. Theodore Roosevelt fit in one building (probably the west wing) where as it has to be acknowledged, that there are just a fuckload more politicians and bueracrats and what not now than the entirety of everyone to serve in the senate of the Roman Republic/Empire. There's enough politicians in the world that we have politicians that smoke crack. So to some extent you'd just expect that the present day will always produce worse politicians than history ever did because the probabilities always increase that an unlikely candidate will come into office somewhere and get our attention through some act of stupidity.

But, I notice, we are also not living in an era that seems to routinely produce the best politicians history has ever seen, even though in the sheer numbers game - the best leaders in the world have more avenue than ever to get into public service. One explanation could be that that the private sector is in fact the fragmented but real world power and that's the darwinian jungle people worth their mettle go into, rather than public service. 

Whatever, the world is very complicated, and that complicated world is largely complicated noise. So after watching Trump get elected, and concluding that I really didn't know anything about the world even though I had more warning than others on top of global trends that should have made the result much less surprising than it was to stupid old me. I decided to go listen to some old dudes.

And the first old dude was Marcus Aurelius. And from listening to it, here is what I have to say. The world has changed very little in 2000 years. Case in point, the first book of meditations is a long list of people Marcus feels he has learned virtues from like "Of Alexander the Platonic, not often nor without great necessity to say, or to write to any man in a letter, 'I am not at leisure'; nor in this manner still to put off those duties, which we owe to our friends and acquaintances (to every one in his kind) under pretence of urgent affairs." which is to say, his friend Alexander is great because he isn't one of those cunts that constantly tells people 'I'm busy' and puts off meaningful interaction. That's advice well suited to my social environment in every direction, yet this was clearly an excuse people used in 160 BC. The unfairness of the comparison from now to then being that far more people in 160 BC probably had to work to actually survive. And I don't mean pay the bills or mortgage but literally had to work the fields in order to live through the winter and shit. Very few people are required to produce food for themselves and everyone else these days.

This is a digression though, consider this, if you were to acquire two nuclear warheads, as portable and independently/self-sufficiently launching warheads and a time machine and went back and handed one warhead to the Romans and one to the Visegoths or Egyptians or Persians or whoever who cares, you would probably see the two newly minted nuclear world powers basically handling their policy and diplomacy in the exact same way that modern minds have. 

I feel a good place to start looking at how government and governance works then it's Machiavelli's 'The Prince' but I read that a long time ago. After reading the degustation of governance that is Niccilo's menu, I'm now of the mind (clearly) that you want to walk upstream, get the story from the horses mouth and listen to the successful rulers of history.

There's huge advantages to doing so - firstly, history has judged these rulers now. Probably thousands of times over. There consensus to say, this person drove good policy, people's welfare increased, the state became more secure blah blah blah. And in the case of the '5 good emperor's' much fewer of them tended to be stabbed to death by the disaffected. The 5 good emperor's didn't really even use security to protect them from assassination. 

So they got to sit down and write books or letters being 'this is how I think it should be done'. Obviously they are going to be as prone as any other successful person as downplaying the role of luck in their lives. But they are not, like modern day leaders going to wildly speculate as to the role of social media and how it's changed politics.

So I have Marcy Marcus' meditations to finish, then about 30 hours of Seneca to get through. I'm looking forward to some stoic drawing sessions ahead. Let me know how reading progressive blogs about the alt-right phenomena works out for you.

Things of interest

I'm struggling to find time between vices and obligations to actually write here. Thus allow me to present an unsatisfying degustation/taster menu of the concepts I find interesting at the moment and why, without actually exploring them to any level of satisfaction:

boredom - I'm fascinated by it, clearly a negative emotional state - but what exactly? What do evolutionary psychologists have to say about it? And why does it seem to increase in my case in proportion to my access to entertainment? Why are we almost never bored in the presence of a mirror but I'm often easily bored by the internet? Does anyone else find the major internet media players obsession with tayloring content via algorithms something that has made the internet much less interesting than a decade ago? Do people with more routine, simpler lives find they experience less boredom rather than the intuitive expectation they would experience more? Since practicing mindfulness I've also experienced that boredom is seemingly an entirely optional emotional experience. I also wonder if boredom relates to guilt? How related is it to procrastination? When historically did boredom emerge as a concept?

fascinating.

Infantilization - Has been on the plate for a while, but not while enough for the touted concept to become a recognised word by google spell-check. I imagine there'd be two ways of looking at it not necessarily mutually exclusive, the first being a regression by adults to childhood, the second being an extention of the duration of an infancy period. However the phenomena is certainly readily observable in my social environment and even on my travels. There's the easily identified economic/demographic footprint of infantilization everywhere as well - staying in school longer and/or returning to tertiary education, later marriage ages, later reproduction, later moving out of the parents house etc. And beyond socio-economic factors that explain the more mundance elements - mortgage inflation exceeding property rental inflation exceeding wage inflation vs return on personal investment in education ever diminishing - there's the generational aspect as well, in terms of Baby Boomers holding most management and leadership positions for 40 or 50 years. Then there's the consumption by adults of entertainment and products previously stigmatized as childish. I'm not a big believer in widespread cultural phenomena like that being 'designed' and when you don't believe in the illuminati convincing us to be spoon-fed babies in order to control us...profits! Then such phenomena becomes actually interesting.

hmmm...

The redundant channels of progress - Is something that has been lingering literally for years but I've never actually written about it. The catalyst being when I used to sit and listen to petty semantic arguments between members of an organisation I used to be involved with at board meetings when patently, the organisation at the time was not really achieving much. (Since those days I've become less involved and the organisation more successful. Coincidence?) Sitting in those meetings though, I observed a lot of proclamations that people were all after the same thing, but borderline insane acts of organisational sabotage. It occurred to me (and I recognized in myself) that I was witnessing not just a desire to 'fix the problem' but the desire for 'me to fix the problem' in terms of, it wasn't good enough for the problem to be fixed, intrinsic in the thought process was that 'we' needed to be the ones to fix it. If you will, it was not important that somebody climbed Everest, I need to climb Everest and everyone needed to know that I did.
So I wonder broadly what this attitude of needing to be the one, costs us in terms of common achievement. For arguments sake, do Oxfam and The Salvation Army need to both exist? I'm sure there are meaningful and important differences between them, but lets just pretend they both are charity organizations that aim to alleviate the suffering of the poor. Why do I have choices between multiple organizations often addressing the same causes? How much waste and inefficiency between them? And as an economist, what is optimal for progress redundancy and competition, or monopolies spared having to compete between fickle donars. Or is there some optimal coopetition that the market is already achieving?

which leads me to

Capitalisation - in the sense Malcolm Gladwell is obsessed with. Again this has been long simmering on the hob, but recently the question has become fascinating again because I've started to doubt the conclusion I took for granted. I think about it often because I work in a call center, one of the most diverse work places I've ever experienced. It attracts ungraduated university students, recovering addicts and artists and other deadbeats. I imagine one could pick through the resumes of the employees on the books and even briefly conduct some interviews and create a 'skillbank' of all the various skills and knowledge my employer actually sits on. The brains trust of the call center staff. Then the question becomes 'is this the most valuable thing we can do with this collection of talent?'
A separate anecdote that relates was one from my old work mentor - he asked us if we knew what the most recent developed piece of tech was in the first working Television. The answer I was told was the cathode ray tube (why TV's are/were refered to as 'the tube') which were invented aprrox 50 years before the first Television sets. The point being that sometimes the components for something are all already there we just need to figure out the right configuration.
So when you have a diverse team of 100 people, is the best thing those people can achieve for the wages paid them by the company, what they actually do, routinely with little variation? I used to think the obvious answer was 'no' there are far more valuable things (even in the strict capitalist-monetary sense) than cold calling. Now I am not so sure. Chiefly because figuring out the right way to configure all those diverse skills to maximise return is some kind of nightmare.
I'm fascinated with questions of capitalization because I suspect the better world we imagine we want to live in is perhaps often a logistical nightmare. Consider the distribution of wealth and questions of fairness. If it the following premises are true a) we don't need everyone to work to generate our current GDP and b) we don't want all the wealth to concentrate in two small a population, then how do you go about distributing income? This scenario kind of featured in a trailer for a documentary I never watched 'Hypernormalization' where the v/o suggested that many of us work in fake jobs while our real job was to shop. Something in my intuition tells me it is not so easy to dispense with the fake jobs, and at the same time, nobody wants an economic system where the minority of people who do all the actual productive work are the only ones with income. Hence we insist people at least make a show of working in order to be distributed the income necessary for them to fulfill there basic needs and some of their wants. That's fucking tricky to devise an alternative yo.

and eternally fascinating

why are smart people so stupid/ineffective? - I'm constantly amazed in life how well informed everyone is. watch Russell Brands 'the Trews' and probably everything he says won't actually be news to you. Watch some New Age speakers and while suppressing your strong distaste for woowoo notice on how many issues you actually kind of agree. I mean that might differ between you and me, but while I feel notions like a 'source consciousness' are vapid containers of bullshit, as is talk of 'vibrations' and 'frequencies' in some inter-dimensional sense, I do basically agree that alienation is systemically being increased in our society and community needs to be reestablished to fix much of the problems of the world.
While I don't advocate joining any new-age movements, what I notice is a large echochamber of lucid arguments that have a consensus on what's up, and yet this body of intelligent people appear unable to actually change the world in any significant way. Myself included.
That is interesting to me.