Sunday, December 9, 2012

Individualism part 2

I have been mulling over a sister post to "Individualism", and it's turning out to be quite an ordeal to write. I was compiling all the information into one post, when it probably needed several. So I'll start by sharing the back-story to my personal experience with government subsidies...because I didn't just arrive at the conclusions I have without experience.

The first subsidy I ever received, was back in 2001. You may remember it as the "First Home-Owners Grant". It was a new Federal initiative meant to offset the introduction of the GST, and was funded by the various States. It was intended as a one-off payment ($7,000) to people who were purchasing their first home. As I understand, the scheme is still going today.

It was great news for us back then however, as it meant we could buy our first home. The sticker price on our Australian dream, only cost $64,000. After the grant was applied and our small deposit, we only had to borrow $54,000 from the bank. It doesn't sound like much now, but we barely earned $30k between us.


Prior to moving in


Our little 3 bedroom house, became the centre of many "firsts" for us. It was the first house we lived in as husband and wife, we brought our first daughter home from hospital there, we planted our first vegetable garden and it made us feel wonderful to play our part as first home owners.

As exciting as all this was however, something started to change in the background. I'm referring to the incredible "boom" in house prices. We had just gotten through the door before prices started to escalate. The First Home-Owners Grant, achieved exactly what it was meant to do: cash people up - so everyone was vying to sign on the dotted line.

As property values were increasing so rapidly, many investors (including retirees putting their superannuation to work) decided to buy investment properties. Pretty soon, it was becoming impossible for young couples to buy a house on the wages people were earning. This rapid escalation even saw the government double the First-Home-Owners grant for newly constructed houses.

What this meant to us personally however, is our house went from being worth $64,000 back in 2001 , to  $174,000 in 4.5 years. We sold our house in 2006.


Construction almost complete


We were patting ourselves on the back too, as the sale of our house cashed us up to build on 5 acres. It looked rather good from where we were sitting. That was until the Global Financial Crisis (GFC) in the US arrived in 2007. I remember it well, as we were in the middle of building and naturally worried about interest rate rises. They didn't rise much at all, but the GFC certainly set the stage for emerging economies like China and India to sell their cheap labour and manufacturing. As their economies started to boom, it meant oil prices started to rise across the globe.

Which directly contributed to us receiving our last government subsidy. Another Federal initiative was created to help individuals convert their petrol cars to LPG (Liquid Petroleum Gas) which was around 50 cents per litre back then. Heaps cheaper than petrol, which was edging closer to the $1 mark.

The new gas conversion certainly helped the family budget, but only for about 12 months. Because pretty soon everyone was getting gas conversions (including buses for public transport) so inevitably LPG prices climbed as a result.

A definite pattern was beginning to emerge in my lifetime, but I still wasn't convinced until the recent solar subsidies started to come into effect.


Early days in our new house
posing in front of a cake


Like the boom in house prices and then the petrol/LPG prices, the boom in connecting solar to the National electricity grid, has started to show in the economy too. It's driving up the prices of electricity. I know this is often fiercely debated, but there is more to this situation than meets the eye.

I will save the full explanation for another post, as this is where it starts diverging from the intent of this post.  Needless to say (in brief) when heavy demand is suddenly placed on an individual network, designed for something other than solar, it starts to need massive upgrades. Massive means expensive. As consumers of subsidised products, we often see the fault at the delivery end - the suppliers. We see them as greedy corporate entities, trying to make more profit from helpless consumers.

But aren't we also acting in a self-interested manner when we get someone else to foot the bill for our consumption, for our exclusive profit? That "someone else", are the future tax payers of Australia. Just because the government dips into revenue to help Australians make purchases, doesn't mean it's free money.  It comes from collecting tax revenue.

So if we want to start increasing our taxes, a sure fire way is to continue borrowing from the revenue base. As a family, we've borrowed around $10k in the past eleven years. That's just one family in Australia. I say "borrow" in as much as we're expected to give it back. Our local Council rates have risen dramatically, vehicle registrations, and what we pay in the economy has risen also, due to the fact business are expected to pay more to operate under new government legislation/levies/taxes, etc.

If we want to see prices continue to rise at the unsustainable rate they are in the economy (as I've witnessed in just eleven short years) then we'll continue to buy with fast money, without any thought of who will pay in the future. We are the ones who pay. We always are. So will our kids when they start earning money.


Most of our pre-fab retaining walls were purchased on borrowed funds


Our wage of $30k eleven years ago, has almost had to double to pay for the increase in cost of living - and I've noticed we don't have as much disposable money as we used to either. This is despite all the cheap labour and manufacturing coming out of China and India now - and the fact we have stopped making unnecessary purchases.

I decided to write this back-story down, as there's a far bigger picture going on beyond our personal stories. I took part in a great deal of personal profiteering and saw it as "good", then criticised the corporations for wanting to make money from the services I demanded - and ruining the environment as they did it. There's a simple answer to this equation however - desire less services as a consumer and use only what money is truly your own. Just because it comes from government subsidies, doesn't mean it has less damaging potential as borrowing from the bank.

At least with a bank, you know what you'll be paying with interest and when your contract will expire. With government money, they can set the return at any rate they want and the contract never ends for the rest of your life, your children's lives and their children's lives, etc.

Consumers who are kept away from the real price of what they're purchasing, contribute to a great deal of waste in the environment and loss of freedoms. When we demand a government that will give us stuff on the cheap, and pressure business to give us what we want NOW, we're going to end up with a big cost blow-out in the economy. Who is going to pay for that? Certainly not the corporations and certainly not the government. We reduce our freedoms when we demand more - be it plasma screen tv's or solar panels. It still requires copious resources en masse.

I started to think if I really wanted my daughter to have to earn the kind of income rises we've had to endure to meet the increase cost of living. These increases have been substantial, considering the minimal time-frame it occurred in.. I started to wonder if there was an alternative to this juggernaut, which actually makes sense?


 A personal decree helps when handling your money


The only one I've been able to come up with, is determining myself to pay full sticker price for consumer purchases - with the money we earn now, not potential earnings: be that from tax revenue or bank credit. Doing things in real time, seems to have a built-in mechanism, where I only demand what I have the resources to buy. I also start paying more attention to efficiency, because if something isn't very efficient, why would I bother investing in it?

Which is what I discovered in my research into solar panels. Being connected to the grid is the most inefficient use for what solar panels were designed for. But I will cover that topic more in depth soon.

This post is about attempting to understand what we do in our households, en masse, and how it affects larger forces in the economy to our detriment. We may not necessarily want to acknowledge those effects at first glance, especially when there's a short term gain to be made. I've often asked myself recently, would I have taken the First Home-Owners Grant if I knew the effects it would bring? Chances are, if I was that savvy with money to understand the consequences in the first place, I wouldn't have needed to borrow anything.


Fruit can be unique from the ordinary


I know taking the opportunity back in 2001, bore a different kind of fruit though. It was the realisation, borrowing from future earning potential, only means everyone has to work harder to stay ahead.  If we are going to pay for tax revenue, let it be for the important life saving services and for the genuine disadvantaged. They need that revenue, more than the middle class need their ever increasing (unrealistic) dreams of utopia to come true.

I'm not suggesting for one minute, we should drop the pursuit of our dreams. But if it's not dealt out in "real-time" however, earned with our own labours, then it means we increase our need for resources ahead of time too. Because the energy used to make those resources available today, doubles (even triples) the need of an individual, because we're borrowing on future labours.

Can the future handle that kind of demand on resources? At some point, the law of diminishing returns will kick in, which will be the theme of my next post on the matter.

6 comments:

  1. Chris, I dropped by to thank you for your insightful comment on my "Why Homestead?" post. You really struck a chord because I have been having similar thoughts as well.

    You "Individualism" posts are spot on. I've added them to my "Homesteading Viewpoints" link list, and may have to borrow that Margaret Thatcher quote as well, :)

    Awhile back I did a post on my research into getting off-grid by going solar. At the time, I lamented that there were no government grants to help lower or middle class folks like us, only rebates. You've given me much to think about now, because it brings the whole matter into true focus.

    The US government does offer many subsidies. These are mostly for low income families for food and housing. In fact, my husband recently heard on talk radio that the average recipient of these subsidies is actually receiving nearly twice our own income. Hard to swallow when we know we are the ones footing their bill.

    The other kinds of subsidies I'm aware of are for agriculture. Here, agribiz has pushed congress into raising the qualifying profit to receive such subsidies. I know I'm not saying that right, but unless a company makes millions of dollars or some-such, they don't qualify for the subsidies. It has pushed the family owned farmer out of the subsidy picture altogether. Not that I believe in subsidies anyway, but it's easy to see how the abuse is heaped on the individual taxpayer.

    For things like first time home buyers and alternative energy, the US government offers rebates. With these, the monies have to be paid up front, and the rebate applied for when income taxes are due. Consequently, the only ones who get the rebates are the rich, because they can afford to pay for the thing in the first place.

    How did everything get so out of balance? That song, "the rich get richer and the poor get poorer" is so true. One of these days however, the piper will have to be paid. As a homesteader, that's what I'm hunkering down and preparing for.

    ReplyDelete
  2. Hello Leigh. I'm so glad you've been having similar thoughts about the reality of homesteading. I must confess I never thought I would change direction, because doing what we do is everything I've always wanted. But then when you're actually "doing" it, you realise there's a better system going on in nature already. It doesn't mean you still cannot homestead, it's just a relief to realise it can change direction from what you expected too. It's okay to learn to approach it from a different angle.

    I'd love to read your follow-up in a separate post, about why you asked the question you did about homesteading. :)

    As for your question related to my post, about how did everything get so out of balance (re: rich and poor) that's exactly what I'm attempting to contemplate too. I'm guessing it's because everyone down the line, from top to bottom, all expect a monetary reward just for living in an affluent country. I guess there's nothing wrong with that either, but it IS out of balance when we don't contemplate giving stuff up either.

    Because I've had a few subsidies and gotten ahead, I decided to stop and ask how many subsidies I actually NEED. Should there be a personal limit I impose upon myself because I actually understand the law of diminishing returns. A little bit of money can be a godsend, but too much can start to waste resources. What is the balance? Only we can ask ourselves that question.

    Thanks for stopping by and sharing your thoughts.

    ReplyDelete
  3. Chris, excellent post. I am not a genius when it comes to the economy but am beginning to inderstand it more every day. I think that the issue is that we believe that economic growth is infinite when it is not. That belief is what drives things off of balance. Our dreams are unbalanced as a result too.

    Its a very deep rooted system- so much so that it seems impossible to change even on a personal level.

    ReplyDelete
  4. Yes, I agree with you, we're raised with the concept that prosperity is limitless - ergo, economies should continue expanding without limits either. I guess that's the luxury of living in a prosperous society, that we can take so much for granted without realising it.

    It's nothing to be ashamed of though. I've actually found exploring our past ties in the economy quite liberating - even if it does reveal us to be somewhat unconscious in our consumption. It feels liberating I guess because I'm asking myself the question now - should there "be" a limit?

    I wouldn't say it's impossible to change on a personal level, but it certainly has many levels of challenges to confront. Once individuals decide to set themselves a limit, how do they make ends meet from there? It's very exposing to say the least, but then you also provide yourself with more options too.

    Or at least that's what I am in the process of exploring myself. I didn't realise there was an option to question how I engage - I just took it for granted what was on offer.

    ReplyDelete
    Replies
    1. I agree that its nothing to be ashamed of except that we are wrong. Not morally or ethically, but wrong in our assumptions. I personally think tht whether we like it or not, there is a built in limit that the financial crash represented. Its just a beginning of that limit that we are experiencing now.

      I wonder if you've seen The End Of Growth " and what you think of it? My ipad is not allwing me to copy and padte today but you can look it up and it should be free viewing somewhere.

      Delete
  5. I haven't seen the film/documentary you are talking about, although I have heard of the name before. I will look it up. Thanks for the recommendation. :)

    ReplyDelete

Thank you for taking the time to comment. I love reading what you have to share. Gully Grove is a Spam free environment though, so new commenter’s only leaving hyperlinks, will be promptly composted.