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Banana Republicanism

May 30, 2007

It’s not what you might think, rather it’s the concern, in Australia, that a persistent current account deficit would lead to the status of being a banana republic. And it’s an old concern, no longer in fashion, but that doesn’t mean it’s not going to lead to trouble.

The situation was discussed on The National Interest, on Australia’s Radio National (ABC) . John Pitchford, emeritus professor of (apparently neoclassical) economics, debated  newspaper economics editor Tim Colebatch. Apparently the deficit is due to borrowing by private banks, and Colebatch approached an understanding of the problem when he said the problem is that

The main purpose of foreign borrowing in Australia in the last five-to-10 years has been to inflate house prices, has been to enable banks to lend far more for housing.

They then discussed whether investment in housing could be productive. Colebatch continued to say some sensible things, including that the eventual effect could be a decline in living standards. Unfortunately, the word “land” was not used, and the moderator’s conclusion was “Well, gentlemen, I’m afraid we’ll have to leave the discussion there.”

As Georgists, we know that high land costs can be a problem and worsen poverty. George even made the point that if foreigners own our land, we end up sending them what amounts to tribute, and that’s a bad thing.  And if the mortgages are funded by foreigners, that’s who’s receiving the tribute from the legal owners.  But in Australia, who is selling residential land? Aren’t the sellers mainly Australians, and when they receive their proceeds don’t they invest it, putting into the bank or into stocks or bonds? Or perhaps they mainly just use the money for living expenses, thus not having to work but on balance not investing.

Another thing we know as Georgists is that trade deficits, and current account deficits, aren’t really a problem. They may be a symptom of a problem, but aiming to solve the deficit doesn’t solve the problem.

On a slightly related subject, I’m mightily impressed by the Australian Broadcasting Company‘s large roster of intelligent discussion programs, which all seem to be available as mp3’s, and many also as text transcripts. I know that NPR has podcasts also, but I haven’t yet figured out how to download them.

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