Will the bubble end?

I’d like someone to explain to me what happens to house prices and our economy when interest rates inevitably rise again.

When interest rates rise, so will house repayments for most people, even those on fixed mortgages will have less than 5 years respite at the most, but what will the consequences be? Investors will need more money to service their loans, but negative gearing will give them a larger tax break, and they can always put up rents. Owner occupiers, however, may be pushed beyond their capacity to service their mortgage ending in forced sales or foreclosures.

What I want to know is how the market will react in the scenario where we begin to see an increase in the number of people who can’t afford their mortgage? Will we see the bubble burst, with all of the flow on effects that we’ve seen in the US, UK and Europe, or will the equity rich investors simply concentrate the ownership of real estate further still and continue the bubble?

The combination of negative gearing, combined with the capital gains tax discount, seems to me to be distorting the market so much that my latter scenario doesn’t seem implausible. Would the banks tighten up lending if they saw more defaults, or would they double down on investors in an attempt to save the value of their assets? At what point would propping up the market become untenable? How much worse would the collapse be then?

The Australian real estate market looks to me like a financially ruinous game of chicken. If I’m wrong, I’d like to know why. If I’m right I’d like to know how the hell to get out of the way.

Christmas a victim of carbon price

BREAKING: Globally respected present delivery specialist Santa Claus has revealed that due to the newly announced carbon price he will cease visits to Australia.

Despite the fact that his reindeer led sleigh runs on magic, and is therefore unaffected by a price on carbon, Mr Claus believes that there will be impacts on other parts of his business.

“Traditionally I’ve delivered coal to people on the naughty list,” intoned a disappointed Claus, “and with the number of lies being told by some members of the Liberal and National Parties with regards to carbon pricing, not to mention some of the folk at News Ltd, I’d need a record load this year. That much coal means a financial burden that I can’t bear, and that I have no capacity to pass on”

Asked whether he would seek compensation, or an exemption, from the carbon price Santa gave a resolute “No”. He explained “Everyone understands that we need to take action on climate change, and that a market based price on carbon is a part of that. The simplest and best solution is for Malcolm Turnbull to have a serious talk with some of the anti-science nutbars that he works with, if Tony Abbott could “Stop the Bullshit” about carbon pricing we might be able to get a few of his colleagues off the naughty list and bring my coal order back to a manageable level.”

Efforts to convince Santa to switch to a renewable resource for people on the naughty list have thus far failed to find an alternative. “The reason that I have a naughty list is to convince people to modify their behaviour, I can’t be held responsible if some of the people are too stubborn or ill-informed to make the necessary changes.”

Neither the Prime Minister or Opposition Leader were available for comment, although a spokesman for the PM’s office said that she was particularly disappointed, as she had hoped that finally taking a step towards addressing climate change would have been enough for her to get a pony and a plastic rocket from the man in red this Christmas.

Why wireless will never rival the NBN.

One of the favourite pieces of anti-National Broadband Network nonsense is that wireless technology will make it obsolete. But a group of residents in Thurgoona have demonstrated precisely why that will never be the case.

Thurgoona residents slam Optus tower

Both parties pleaded their case to councillors last night in their scrap over Optus’ plans to build a 25-metre mobile phone tower on Thurgoona Golf Course

The Thurgoona residents, who claim the phone tower is a visual blight that will affect the value of their homes, were last night furious with Optus for refusing to reveal statistics showing a need for the new tower.

Good luck getting a mast on every street corner for a nationwide high speed network.

Buster Boy’s podcast.

Earlier this week Buster Boy announced that he thought he should have a podcast. When I asked him what it was going to be about, he told me that he wanted to tell people all about the board games and video games that he liked. So without further ado, I’d like to introduce Rupert Reviews.

Rupert-Reviews400.png

You can download it straight into iTunes and hear exactly what cuts the mustard as far as this 7 year old gamer is concerned. The inaugural episode looks at Lego Star Wars.

I can remember when I was Buster Boy’s age how much fun it was to make recordings on my Dad’s tape deck, they usually only lasted a few weeks until the tape was full and I’d start recording over it again from the start of the tape. How amazing that this little snapshot of my son can not only be captured in perpetuity, but shared with our friends who are so far away. Living in the future is cooler than I could ever have imagined.

How to Win Fistsfuls of Cash and Defraud People

This article first appeared in the March 2011 edition of The King’s Tribune

What’s the most soul destroying career that you can imagine? Doctor at a tobacco company? Head of light entertainment at Channel Nine? Opinion writer for a News Ltd tabloid? To my mind they’re amateurs and also rans when you put them up against what’s arguably the most destructive force in western society: the self help industry.

Advertising executives, used car salesmen, Young Liberals and door to door pay TV salesmen have got nothing on the shameless misery bringers who hide their destructive nature under offers of a balm for aching souls. They own daytime TV, command overwhelming shelf space in bookshops and charge hundreds of dollars in appearance fees, paid for by poor schmucks who hope that some success might rub off, which is even more laughable when you realise the foundation of the whole industry is encouraging people to feel like failures.

I blame Dale Carneige. Carnegie wrote a helpful little book called How to Win Friends and Influence People, which can pretty much be distilled down to ‘remember your fucking manners’. This concept was such a revelation to the United States of the 1930s that the book became an instant best-seller and has since sold over fifteen million copies. Not only did Carnegie write the book that helped define the self help genre, Dale Carnegie Training provided a template for every loud man with big teeth who’s come to save us all from our problems ever since.

So why are we so willing to hand over fistfuls of cash to people we’d throw beer nuts at if they started proselytising in the pub? An insight into the mechanics of the self help industry is one of the few lessons that truly gripped me at university, because I was able to see first hand how powerful cognitive dissonance could be as a motivator and how easy it would be to exploit. Another lesson I learned was the effect of drinking a jug of beer through a straw, but that gripped me in an entirely different way.

Our psych class was doing a simple exercise to help us understand some personality theory concepts. We were asked to describe ourselves by selecting about a dozen options from a list of attributes, then we were asked to do the same thing again, but this time describing an ideal version of ourselves.

When we compared the lists three things became apparent: firstly, that the small number of people whose lists were almost identical either had very low goals for their ideal self, or were liars. Secondly, most of us felt that we differed from our ideal selves, but rarely to the extent that we felt motivated to make big changes. But most interesting were the people who believed that there was a very large difference between their real and ideal selves. There was about half a dozen of them and they began behaving very strangely, even for psych students. A couple of the girls started sobbing, one guy had a tantrum and stormed off, while the others completely zoned out.

In the hastily convened debriefing session shortly afterwards, our tutor explained that what we’d seen was cognitive dissonance in action. Cognitive dissonance is the discomfort we feel when we become aware that we’re trying to hold two conflicting beliefs at once. In this case, the difference in the rating of ideal and real selves was causing significant emotional distress.

So, what has this got to do with the self help industry? Well, when we feel the effect of cognitive dissonance, we try to find a way to reconcile our conflicting beliefs, like the One Nation member who gets on well with his Vietnamese neighbour and will tell you his views on immigration aren’t racist because “Some of my best friends are Asian”. To relieve the uncomfortable feelings we look for excuses, ways to rationalise away the conflict; and we also look for solutions. This is where the self help industry comes into its own: solutions and excuses. You’re not lazy, someone is stealing your personal power. You’re not disorganised, you just haven’t found the right system yet. Buy this book and come to our seminar, we’ll show you how to fix everything.

The first step in the self help pitch is convincing everyone that there’s something wrong with their life, quite often by telling them about all of the things that they’re supposedly missing out on, or are being denied by some external force. Pump up their idealised self image and give their real self image a kicking into the bargain.

Once you’ve managed to create some cognitive dissonance in the unwary, you then offer them a solution, a way to achieve the ideal self you’ve told them they long to be. While Dale Carnegie may have been content to remind people that reforming their own behaviour was a great way to improve the reactions of others, the self help industry is now packed with everything from ridiculously rigid life plans and enormous tomes on avoiding procrastination that take a week to read, through to fictional mystical prophesies and the idea that simply wishing hard enough will bring you what you want.

When, inevitably, self help books fail to deliver their promised gateway to unimpeded self actualisation, the self help gurus blame the reader for not sticking to the system, or not believing hard enough, which feeds back into the feelings of failure that the reader was hoping to escape and leaves them anxious to buy another self help book. Fantastic! Another book deal for everyone.

The dirty little secret of the self help industry is that if their products were genuinely useful they’d put themselves out of business. The fact that we manage to ignore this fact as we add yet another book to our collection is just another example of cognitive dissonance that we have to deal with.

The reality is that there is no recipe, no sure fire plan, no invaluable secret that will change your life and bring you to some imagined place that is somehow better than where you are today. Pretending otherwise is the least helpful thing you can do, but you won’t find anyone in the self help section telling you that.

Lying to Our Kids and to Ourselves

This article first appeared in the February 2011 edition of The King’s Tribune.

There are really only two hard and fast rules in our household. Firstly, Mum is always right. Secondly, there’s no such thing as Star Wars episodes one to three, or anything called a “Special Edition”. And to be honest, the first rule doesn’t always go unchallenged.

For years I refused to buy George Lucas’ desecrations of my favourite childhood movie on DVD, preferring instead to watch laser-disc rips of the original that were passed between true believers. This was how I introduced one of the best known movie franchises of all time to my son and over the intervening years I’ve had to come up with more and more elaborate explanations to dismiss all the evidence of anything that doesn’t fit my definition of the “real” Star Wars.

All of us lie to our kids, whether as part of an attempt to add some joy to their lives, like stories of a jolly man in a red suit, or as a way to avoid difficult or uncomfortable truths.

But how much of our lifestyles and attitudes are also lies to our kids and to ourselves, about the world that they’ll be growing up in?

Just as my young son will one day be confronted with the horrors of Jar Jar Binks and Greedo shooting first, he’ll also be faced with the realities of peak oil and the impacts of climate change, yet we as a society seem intent on continuing the lie that our lifestyles and patterns of consumption are sustainable. How else can we describe our reluctance to seriously address carbon emissions, or the ongoing trend of building oversized houses on undersized blocks near city fringes?

It’s a natural instinct to want to provide for all of our children’s needs – both emotional and material. It makes us inclined to shield them from unpalatable truths and to buy a long list of things designed to keep them safe, happy, healthy and entertained. This is fine for a while but the problem is that we don’t ever seem to reach a point where we admit to our kids, or ourselves, that there are limits to the way we can live our lives.

At a personal level this continuing delusion can be seen in the way that so many of us manage our personal finances. We get the things that we can’t afford on credit and when we can no longer afford our debt burden we re-finance it away by consolidating our loans or by using some of the equity in our homes to pay for our past indiscretions, then we inevitably repeat the process.

Collectively, we are even worse. The housing bubble in the USA that helped precipitate the Global Financial Crisis was a perfect example of what happens when there’s no equity left in our homes to keep re-financing our lifestyle.

Yet in the wake of this disaster, one that will adversely affect many families for the next decade, there seems to be very little desire to examine whether or not our need for continual economic growth is realistic in a world of dwindling resources.

Even those of us who are determined to “do something” about issues like climate change often find ourselves unable or unwilling to do much more than install some government subsidised solar panels, or buy a horrible hybrid that we’re not entirely sure is any better for the environment than just hanging on to our old car. Meanwhile, any chance for rational debate is undermined by people whose investment in the status quo means that they will not countenance the possibility that “business as usual” simply cannot provide solutions for the problems that we face.

What will bring us to the point where we are willing to face the unpleasant fact that the children filling our kindergartens today may not be able to experience the standard of living that we currently have once they reach adulthood? It’s a cruel paradox, the harder that we try to ignore the need for change in the short term, the more difficult it will be to recover when we reach the limits of our easily available resources.

In December last year the Planning Institute of Australia released a special issue of their journal, Australian Planner, that was focussed on our nation’s capacity to deal with the issues that surround peak oil. Worryingly, they found that “current policy and planning prescriptions are simply not adequate to protect our cities from the effects of petroleum supply constraints.”

This is not a fringe issue being trumpeted by a bunch of hippies, it will quite likely define whether our cities and towns can transform into livable spaces in a low energy world, or end up as the dystopian slums predicted by peak oil pessimists like James Howard Kunstler. The challenge for us and for our elected representatives who will be responsible for setting the policies that will define our future, is how to reconcile our desire for a continually improving quality of life with the realities of climate change, energy scarcity and the global financial instability that will undoubtedly follow.

The big question when it comes to this issue in Australia is whether the politicians and lobby groups who’ve done their best to limit action on climate change will behave similarly with regards to peak oil? Both issues have strong scientific evidence supporting action. Both issues can be ameliorated by changing our energy usage to reduce reliance on fossil fuels and neither of the issues will go away if we simply ignore them and try to paint people who try to raise awareness as alarmists.

Transportation, city planning, agriculture, manufacturing and many of the assumptions that underlie our modern economy will all need to be modified to cope with a world where oil is no longer cheap or plentiful. It’s time that we stopped lying to ourselves about the long term consequences of our current consumption patterns and started preparing for the changes that will be needed to ensure that we can give the next generation of Australians a high standard of living.