Let the First Home Vendors Grant die

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Last week, several newspapers ran a story in which the Labor Opposition criticised the New South Wales Liberal government because the number of first home buyers had plunged after the first home owner’s grant was ended for existing homes. A photo of acting Opposition leader Linda Burney looking out sternly and sincerely accompanied the article, as she intoned in The Sydney Morning Herald’s text that the Liberals had abandoned first home buyers:

“The acting Opposition Leader, Linda Burney, said this decision and the axing of stamp duty exemptions for first home buyers of existing homes from December 31, 2011, meant the New South Wales government had ‘abandoned first home buyers’.

“’These figures clearly show [Premier] Barry O’Farrell has locked first home buyers out of the property market with his cuts to stamp duty exemptions and first home buyer bonuses,” she said. ”The worst loan approvals for first home buyers in 20 years should be a wake-up call for the O’Farrell government. Their approach clearly isn’t working’.”

What bollocks. First home buyers weren’t locked out by the ending of the first home vendors’ grant: they were locked out by the impossibly high prices that this grant has helped generate over the 30 years since it was first invented. And its purpose has never been to give first home buyers a helping hand: it has always been used as a way of giving the economy the economic equivalent of a steroid injection. First home buyers have instead been the sacrificial lambs of an asset-price-inflation route to apparent national prosperity.

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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22 Responses to Let the First Home Vendors Grant die

  1. koonyeow says:

    People in office want to be seen that they are doing something (like giving grants to avert a recession), even when doing nothing is the better option.

  2. Steve Hummel says:

    Regarding: http://t.co/Jvgydqz7

    Yes, but solving climate change still doesn’t address commercial realityof scarcity of individual incomes in comparison to prices.

  3. Steve Hummel says:

    And when the next Alexander the Great or El Cid gets evangelical about their economic “miracle” and Iran, Syria, Russia, China and Japan also don’t kowtow to Finance’s current paradigm….climate change will definitely be put on the back burner.

  4. Steve Hummel says:


    and Iran, Syria, Russia, China and Japan also don’t kowtow to NATO’s geo-political chess game….climate change will definitely be put on the back burner.

  5. Steve Hummel says:

    regarding http://t.co/UG2KcEU0

    God bless these guys, but they or their bosses will end up opposing REAL individual economic freedom the same as the American Koch brothers and J. P. Morgan Chase et al do ….and just like the Fabian Socialists opposed C. H. Douglas back in the day…..because it might break up a part of their turf/privilege. And so the unobserved and most systemically significant factor of inflation goes on….doing its work while accountants don’t think about economics and economists are ignorant of the ever present effects of the rules that govern accounting itself. You have to look at all of the possibilities, all of the factors with a newly and actually re-opened mind. Even the “mundane” ones or the “everybody already agrees this is not a factor” ones. Iconoclasm has to go deeper than theory. Total de-construction and re-examination is sometimes necessary.

    Change the individual consumer financial paradigm from employment and borrowing to Dividend, employment and borrowing if desired and creditable and it will change everything. Everything. By re-balancing power toward the individual. The Koch brothers and J. P.Morgan control the monopoly on the life’s blood of the economy and the means of survival for individuals. We need, we require a SOCIAL/INDIVIDUAL Credit to create the symmetry, the balance, the transformative ability to the economy that is now so severely lacking.

    And time is running out.

  6. Steve Hummel says:

    Regarding: http://t.co/dYkj4syB

    Its headed in the right direction, but still will not get the job done because it does not recognize the most underlying cause of price inflation and hence loss of value of business profit and individual income…..the conventions of cost accounting.

    A debt jubilee is the nascent recognition of the truthfulness and effectiveness of the citizen’s dividend. All you have to do is recognize/admit to the existence of the ever present commercial Gap between total individual incomes and total prices ALWAYS ENFORCED by the accounting system ITSELF. That commercial REALITY cannot be overcome except by a SOCIAL/INDIVIDUAL Credit in the form of a Dividend to individuals because it goes around commerce directly to the individual first. And its not inflationary. How much less money will need to be created if you GIVE an individual money as opposed to making him take out a loan? And no……the business/commercial financial paradigm does not need to be changed, that can remain the same. I don’t live in a fantasy world….like the habitually economically orthodox do.

    When are we going to smack the finance ministers, central bankers and private bankers up along side of the head and say: “You are entitled to be a part of the economy, but a much smaller part. Now sit down and shut the fuck up we’re going to make the will to economic freedom for the individual the primary intention instead of the will to wealth and power of the various financial, corporate and political entities.” Sheeeesh.

  7. drew priest says:

    Hi Steve, I got a question about the “supply” curve.

    You make the argument in your book that main stream econ gets the “supply curve” wrong. They use marginal cost = marginal revenue, and that is not realistic because it does not maximize profit. In reality, you argue, firms use “cost plus” accounting to set prices. This matches up with my experience in my own company. We are very focused on production cost plus margin, and maintaining the margin in the introduction of new products.

    But then I look at some recent booms and get confused on this point. In 2008 the economic boom was so significant that we went on allocation, spreading out deliveries so every back-ordered customer got something. Our dealers also increased their margins in that boom time, asking and getting MSRP for new orders. This behavior certainly implies an upward sloping supply curve and upward sloping marginal cost.

    Again, starting in Dec 2012 America is going through the biggest gun sale boom since records started. Retail shelves are bare, distribution centers are empty, supply chains and manufacturers are back-ordered for the next YEAR. Most retailers and distributors and manufacturers have CLOSED their back-order books because they have already booked full capacity for 2013. In this panic buy situation, prices have doubled and tripled. $900 semi-auto rifles are going for $2700 on open market auctions.
    This behavior again implies a rising marginal cost, which is one of the specific things you call out as erroneous.

    Can you provide some insight in these 2 experiences? What part of your supply model am I missing?

    Thanks, Drew

  8. mahaish says:

    i make a living out of managing the revenue and yield curve.

    there are fixed costs and variable costs.

    fixed costs exist regardless of the business throughput.

    i can tell you the real world experience, is that maximising profit is by clearing the market.

    to clear the market , some inventory may have to be sold at less than optimal profit. and as long as the sale occures at above variable costs, then thats money in the bank.

    so i think the test books are right. to maximise total revenue, we may have to sell at cost or even at a loss, if there is a inventory and capitalisation cost.

    the investment has already occured, and if the product doesnt clear the market , you have to flog it at the best avaialable price

    the question is timing, as to when we sell at less than optimal profit or at below cost.

    the revenue curve isnt a upward sloping curve with variable steepness.

    it either a bell curve, or a flat line with a sheer cliff, depending on the product market.

    i exploit the marginal cost = marginal revenue model every day, and the business i work for out performes the rest of the market by a factor of 3 to 5 when its comes to revenue growth.

    the reason why we out perform the market is that we use the marginal cost model, and our competitors dont.

    i hate to say it, but the text books are right.

  9. Steve Hummel says:

    Regarding Andrew Lainton’s The Profits (& Growth) Puzzle:

    Your theory simultaneously mirrors Social Credit Theory and shows incomplete research and analysis of its ideas and policy mechanisms. The intangible asset of a Banking license of Keen and your Franchise Value of Equity are Social Credit’s Cultural Heritage of Productive Potential (Innovation), a communal asset whose value has been completely usurped by the Financial system. Douglas cannot simply be pigeon holed into the crank “interest is the whole problem” monetary reformers. His insights go much deeper than that and actually precede your own and the analysis of others you site. Finally, velocity theory is clearly invalidated by the ever present commercial and monetary realities of cost accounting’s conventions. A good synopsis of Social Credit can be found here:

  10. Steve Hummel says:

    Velocity provides lots of money churning through the system as overhead charges, but very little actual additional purchasing power. Hence, without a direct supplement to individual purchasing power that doesn’t first go through a business and consequently invokes the scarcity of incomes in comparison to prices, there is a necessity to borrow and the continual build up of debt.

    Sales from businesses cannot just be used for purchases willy nilly without paying creditors….unless there is a tremendous amount of unreported income which indeed adds robustness and is a way of survival in some economies. It shows the positive effect a Dividend would have on any economy. Combine both the Dividend and the Discount mechanisms and you solve both the lower and upper ends of the causes of inflation.

  11. TruthIsThereIsNoTruth says:

    oh man – this used to be a hot topic.

    Now we have 10 comments in 8 days, 7 from the messiah at the centre of the universe as he continues to demonstrate that all topics (now perfectly random and unrelated to the actual post) gravitate to his nausiatingly incoherent pontificate indulgences.

  12. Steve Hummel says:

    They are all relevant to the twitter references alluded to. No one else is posting so….so what. All you do is show your biases and unwillingness to open your mind to something new and different with a negative post. So post on the topic. Light a candle. Of course with someone whose moniker is TITINT….what can we expect.

  13. sj says:

    Steve Hummel this website had many open debates with interesting bloggers.
    AK,Bullturnedbear,Barneywasright,Brett123,Elliotwave the list was very long.
    But now you are lucky to get 5 original intelligent comments a month?
    What happened?

    Too many extreme political ideas:
    The Pirates and Scum Bag Tour.
    The Debt Jubilee.
    Soft marking at Universities.
    Supporting a extreme green government that loves debt.

    In otherwords the website has become too political and bloggers with original interesting thinking stay away and you are left with the lowest common denominator mass herd victim mentality thinking.

  14. mahaish says:

    the pot shouldnt be calling the kettle black sj,

  15. Steve Hummel says:

    I think the number of posts here has declined primarily because Steve Keen initiated his paid site and many of the posters went there. You can consider my posts as you will. If you’re an accountant you ought to understand what I am referring to in many of my posts. Part of the problem with understanding what I post is, as Steve Keen himself has acknowledged, that you can get a PhD in economics and not even have to take an accounting class to do so. In addition apparently few accountants think either in terms of economics or in terms of the economic and monetary effects of their own discipline. And then of course you have the ever present problem of current orthodoxies preventing theorists from considering those same accounting effects. Orthodoxy blinds and inhibits looking, and it is so prevalent it is incredible. Even in the hard sciences let alone in the social sciences like economics. I acknowledge most of the ideas of economists like Steve Keen and Michael Hudson, it’s just that I believe they are missing the point I am making which is that there is an accounting flaw which is always in effect and which uncorrected destabilizes the economy. Orthodox theory claims that velocity of money invalidates this, but a little looking and thinking about how all money passes through the costing system that every business must adhere to instead of just multiplying purchasing power by supposedly passing from hand to hand without doing so, in fact invalidates the velocity theory and acknowledges the commercial REALITY I am referring to.

    The other thing I often post about is modernity’s excessively intellectually compartmentalized state which inhibits wisdom. Wisdom is itself actually the interdisciplinary integration of thinking which enables one to better understand issues and so more effectively act and/or create policies that will be wise as well.

    I find it hard to understand how suggesting that true open mindedness and Wisdom….can be rationally opposed….but these are indeed interesting times.

  16. sj says:

    SH some older bloggers will remember the time of 2008 Steve keen, getting over 300 comments a item.
    Now in 2013 lucky if you get 20 comments?
    Just stating the obvious Mahaish if that’s calling the kettle black then I will have a nice cup tea and relax!

  17. Derek R says:

    There’s not a great deal of activity on the paid site either, Steve H. I think the fact is just that Prof Keen has had to spread himself extremely thin since September and as a result his Web presence has suffered.

    However I don’t think that’s necessarily a bad thing. Fundamentally it’s a side-effect of the message getting out. The more in-demand he is by the MSM, think-tanks and politicians the less time he has to spend on here. But it’s far more useful that he is getting the message out to movers and shakers rather than just to Internet nerds.

  18. sj says:

    Derek is the message really getting out is the Prime Minister asking for Steve Keens advice?

    Debt has increase since 2008 in Australian.
    No debt Jubilee at the moment in Australian.
    Soft marks and Pirates and Scum Bag tours will not move any movers and shakers.
    Australian would rather watch the cricket than listen to extreme left agenda.

  19. Steve Keen says:

    You’re correct Derek. In fact I’m going to have to drastically scale back my internet activity soon. Having been a way that I got my non-orthodox message out, it is now one of the main reasons that I am not able to develop my analysis as much as is needed.

  20. sj says:

    Well done Derek 100% pass on this herd blog site.

    Non -orthodox message is very clear don’t question or have critical thinking of the cult message.

    I’ll think disappear from this site, like all other old time independent bloggers.

    Good luck to all!

  21. kalman says:

    Dear Bhaskara II- January 20, 2013 at 10:57 am. In response to your questions regarding investing in precious metals, I have the following response.
    I am not an investor, I work very hard, live well and save well. I don’t believe in the concept of investment, this was a model implemented as the Babylonian Law code dating back to 1772 BC and since metamorphosed into a Charles Ponzi scheme.
    However if I was to gamble/speculate/invest in anything at the moment other than cash, I would buy a lot of Silver. I have done my extensive research and the fundamentals look favorable at the present price, certainly below $50US/Ounce. It is important to note that I am 36 years old and would not need to cash in the gamble for up to 40 years, so there is a lot of years to make an enormous gain.
    I hope this helps, Kind regards, Kalman.

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