Events leading to entering the EZFKA epoch

This is a very large topic that I would like to discuss. Or at least start discussing.

No way to fit all the material into a single article (without making that article a long meandering treatise that nobody would read). Nor is all the material really crystallised in in the peachy noggin just yet, but better start somewhere than not start at all.

I’ve been thinking about this as a departure point: it seems pretty apparent, without getting into the detail of ancient politics or economics, that for a long while (let’s say at least into the 1980s) Australia used to be a place where most people weren’t very wealthy and taxes were quite high.

People worked quite hard for a relatively modest living.

At first blush, this is shit. But, on slightly closer consideration, it’s tolerably clear that the fact that people worked hard and taxes were high actually meant that there was a surplus which was invested in the country’s significant physical and human infrastructure. Nation building.

Looking at times closer to the present, people seem to be wealthier, taxes are low and infrastructure is fully loaded and frequently overloaded.

This doesn’t seem to be a random-walk outcome. But a causal and consequential shift. Up to the 80s (say) the population lived austerely and invested for the future, building all the good things that are necessary for good living. Afterwards folks sat back and enjoyed the fruits of that earlier investment. And gave themselves lower taxes and stopped investing for the next phase of the future.

As the earlier (overbuilt, at great cost) infrastructure capacity was inevitably gobbled up over time, we find ourselves in the EZFKA, where everyone is focussed on competing to grab a bigger slice of the pie, leaving their neighbours a bit less.

Looks a lot like the textbook story of the capital investment cycle. The investment is costly upfront, but generates benefits down the track. The investment requires maintenance, but even with maintenance, it does not provide returns forever and eventually new investment (and cost) is needed to replace it.

The (caricature-level) political analysis seems to fit this narrative arc – John Howard’s constant tax cuts and (at the same time!) reduction in government debt certainly seem destined to add up, at the aggregate level, to reduced investment in national capital stock, defined broadly.

If this be right, then any exit out EZFKA mode would require a long and painful period of investment and associated lower consumption. Distributionally, this would suck for a certain generation who both suffered from the underinvestment of the last few decades and would have to bear a chunk of the burden of catch-up investment for the future.