The Keen Walk to Kosciuszko was a fabulous experience—as Matt Carroll (one of the organizers) put it, it was “the best holiday ever”. That’s not to minimize the effort involved: covering 235 kilometres on foot in 8 days is no mean feat. But the combination of great company, personal success for all involved in an impressive physical challenge, lovely scenery, excellent weather, and a cause that united a remarkable group of people, made The Walk far more pleasure than pain.
(The Walk was also a successful fund-raising venture, generating over $5000 for Swags For Homeless–enough to give 85 homeless people a portable bed in which to sleep–see the video further down. Please consider adding to our fundraising tally by clicking on one of the Swags For Homeless links here)
This wasn’t what was intended of course: The Walk was supposed to be a “Walk of Shame”, as several headlines termed it , for me being “hopelessly wrong on house prices” (“Walk of shame for professor who tried to burst house bubble”; “Walk of shame for economist”). Instead, it turned into a successful protest against the housing bubble, whose existence even RBA Governor Glenn Stevens recently (and bravely) acknowledged on prime time television (“Rates to rise, property speculation a ‘mistake’”).
The Walk had its genesis in a “Vital Issues Seminar”, a series run by the Parliamentary Library to keep politicians and their advisers abreast of competing views on important issues. Macquarie Bank interest rate strategist Rory Robertson and I shared the bill on November 26th 2008 (the month after the Government introduced what I prefer to call the First Home Vendors Boost, with the unspoken objective of supporting house prices–see “Rescuing the Economy or the Bubble?” and “FHB Boost is Australia’s “Sub-prime Lite””), in what was billed as “Economic futures: two views”. In the middle of his presentation—and without any prior warning—Rory sprang the bet on me in front of 80–100 Parliament House staffers (and some politicians).
Having been caught by surprise, I agreed to it before having a chance to negotiate terms. I subsequently found that I had in effect signed a near blank contract with a banker, leaving him to fill in the details—not something that I recommend anyone do.
Click to donate to Swags for Homeless
Now that The Walk is over, I can revisit a vital issue of my own: what the bet really was about in the first place. Fortunately the debate was recorded, and when Rob Burgess of Business Spectator turned an impartial ear to it (Rob came on The Walk to report it for Business Spectator: click here to read the series), his conclusion was that the bet was that:
Keen must walk to Kosciusko if nominal house prices fall by less than 20 per cent before October 2013. (“KEEN’S DEBT MARCH: Rory’s repudiation”)Needless to say, that’s very different to how Rory interpreted it: his version was simply that the bet was over—and he had won—once prices rose past the peak set in September 2008 (the quarter before he pulled the bet on me). But Burgess’s summary is an accurate interpretation of our discussions that day. If you have the time, you can decide for yourself by listening to the recording; if you don’t, here are the relevant segments, transcribed from the one hour debate (the key passages relating to how the bet should be interpreted are highlighted in bold).
36:35 seconds into the recording: Rory: I think some people here probably came today to hear about why house prices are going to fall 40 percent, so that’s what you’re most famous for at this stage. So what I was going to do, in the spirit of competition or whatever, Steve’s a betting man, he sold his house.. so what I would say is if, I think it was 40 percent on average across Australia, is that what it was?
Steve: Yeah, but over a ten to fifteen year period mate, so…
Rory: so, all right, it’s a long term thing…
Steve: but over the long term I’m willing to stick to it.
Rory: Well how about this? If Australian house prices as measured by the Statistician fall from peak to trough in nominal terms by 40 percent, I will walk from Canberra to the top of Kosciuszko, and if in fact Australian house prices fall by less than 20 percent, so if it just turns out you’re less than half right, … I will wear a shirt saying “I was hopelessly wrong” if they fall 40 percent, you should wear a shirt saying “I was hopelessly wrong” if it doesn’t…
43:50: Rory: The Australian market is down 1.8 percent in the third quarter basically, so take that as the high point for our bet…
58:10: Steve: I think the timing of what we’re going through is quite different to America. On that point about Australia not being as irresponsible on lending, we didn’t lend to the same people … irresponsible borrowers rather, but we lent as irresponsibly to the entire nation.
If you look at the household debt to GDP ratio, in Australia it’s 2 percent higher than in America right now. The ratio here is 98 percent, the American ratio is 96 percent. If you go back to the 1990s, we had half the American’s ratio—which of course was lower back then than it is now. So we’ve been lending to a broader part of the community, which is why you haven’t had a collapse in the housing market straight away.
But what will happen when the debt slowdown strikes and people stop borrowing money, we won’t have the same degree of spending, that will cause a decline both in asset markets and also in employment–in the retail trade in particular cause households are the ones who’ll cut back on spending this time round. A retail led… well, recession would be a polite word for it, a very extreme drop in retail sales, increase in unemployment and then anyone who has a mortgage and no longer has a job will lose the house, and you will then have a credit crunch coming after the event.
So I see the American process as being a housing crisis, a credit crunch and then macroeconomic; we’re going to go through macroeconomic, housing and then a credit crunch after that. And I see it taking about five years. When that hits, then we’ll be in the same situation as the Americans.
59:35: Rory: I’m still only going to give Steve five years to get his 40 percent. (Banter over the top of each other at this point)… I would say that the debt to income ratio that Steve Cites aren’t nearly as important as the interest payments to income ratio, and the Reserve Bank has just cut them…
60:15: Rory: It’s only just begun, right? They cut by 2 percentage points in three months over 4 meetings… The down 2 per cent in Q3 was due to the Reserve Bank’s deliberate effort to crunch the household sector and house prices, and now it’s the Reserve Bank’s deliberate effort to support the economy as much as it can, and the housing market in particular.
Steve: The only way that’s going to work however is they actually encourage Australians to continue borrowing money, because a large part of the demand’s by increases in the level of debt. Now that’s how we got out of the 1973 downturn, it’s how we got out of the 1990s downturn. We started borrowing money again. Do you think Australians are going to start increasing their debt levels again? I’m sorry, I don’t. I think we’re reached a secular turning point, not just a cyclical but a secular turnaround.
In that case, each 1 percent cut by the Reserve Bank reduces the financial burden on the economy by about 18 billion dollars, which is substantial. But if Australians stabilise their debt levels, or try to reduce them by 100 billion dollars a year, that’s five times the scale of each 1 percentage interest rate cut. We can’t cut more than another 5 percent.
67:30 to End: Sharryn Jackson MP (Chairing): We also witnessed of course, the bet, but we might have to clarify precisely what… (drowned out by chatter).. And I’m sure we’ll all look forward to one or both of you wearing a T‑shirt saying “I was horribly wrong”…
Burgess arrived at his summary by combining my long term prediction (that house prices would fall by 40% over 10–15 years) with Rory’s time frame (“I’m still only going to give Steve five years to get his 40 percent”). Since Rory set a time frame of 5 years, and my call was for a 40% fall over 10–15 years, a halfway call—that I’d lose the bet if house prices didn’t experience a 20% fall over the five years between November 2008 and October 2013—is a fair compromise between our positions.
So why did I walk anyway, over three years before the bet will be up? Because I realised that if I didn’t, Rory and the property lobby would pillory me for having welshed on the bet as Rory had interpreted it. So the best tactic for me was to undertake The Walk, and turn it into a protest march—after I had Rory agree that, if prices ever did fall by 40%, he would also walk.
In May 2009, the Rudd Government extended the First Home Vendors Boost for another six months and I felt that prices were now certain to breach the September 2008 level. Email correspondence between myself, Rory and Chris Joye in June 2009, evoked agreement from Rory that he would walk if there was ever a peak to trough fall of 40%. Thecorrespondence on this is reproduced at the end of this story: ordinarily I wouldn’t reproduce such emails, but Rory at one point publicly denied that he had any obligation to walk—see “Keen the loser walks”. This correspondence therefore belongs in the public domain.
Now, courtesy of Burgess’s considered interpretation of the bet, if prices fall by 20% or more at any time between now and October 2013, Rory should walk.
The Walk
One thing Rory didn’t know when he pulled the bet on me is that, while a lot of people of my age (57) might have recoiled at the very thought of a 225km walk, it actually appealed to me. I am not in Tony Abbott’s class as an endurance athlete, but I have done the odd 1km swim /30km bike ride / 10km run triathalon (including the now defunct 2DAY-FM series which included a swim across Sydney Harbour), a fair few half-marathons (I’m doing the 2010 one this coming weekend) and numerous City to Surfs.
Steve Keen’s Debtwatch PodcastSo I approached the event with a positive perspective, seeing it as a chance to get back into shape, and also do something that few others would have done. I also expected that some of the 4,000 members of my blog (and its roughly 50,000 readers each month) would also find the idea attractive.
So it transpired: once I put the invitations out on the site www.keenwalk.com.au, about 40 people put their hands up to join me for anything from an afternoon’s walk to the whole trek from Parliament House to Mt Kosciuszko. That turned what could have been a very solitary affair into a moveable feast of camaraderie. Overall about 40 people took part in The Walk, including 8 walkers (and several support crew) who made it all the way.
I expected the Keen Walkers to be an eclectic lot, but even I was amazed. There were many IT professionals and some engineers (something I had expected since there are many computer programmers and engineers on the Debtwatch blog), several people from the finance industry itself, an economist, journalists, an ex-rocket scientist, small businessmen, several RAAF personnel, a train driver, and an ex-real estate agent. As well as having the inevitable discussions about house prices and debt, I found myself engrossed in conversations about assembler-language programming, Nelson’s victories in Egypt and Waterloo, quantum mechanics, XML coding, impressionist painting—and frequently simply discussing the beautiful scenery, the physical challenges ahead of us, and the inordinately hot weather.
It did seem that the heavens were smiling on us. I chose late April because I guessed that this would be the best compromise between scorching Summer heat and unpredictable alpine blizzards; as it happened, we had eight glorious days of sunshine and only one day—the final one on the Mountain itself—of wintry alpine conditions. The heat was so marked that we altered the start time for the morning runs from 10am to as close as we could manage to 7am.
Each day began with a hearty breakfast with the entire troupe, followed by a preparatory massage for me from our masseur Ania Pawliszak. Then we ran between 12 and 19km depending on the day, covering the terrain at an average speed of about 10 kilometres an hour, including many uphill legs when I slowed to a Cliff Young shuffle (as in the video above).
The run leg was also far more social than I had expected. I upped the ante on the bet by running half rather than merely walking, simply because the walk on its own wouldn’t have been challenging enough. I expected this would give me a solitary morning followed by a social stroll in the afternoon, but on most days I had four or more co-runners—notably the two Daves (every second person seemed to be called Dave), Adam, John, and my friend and fellow economist Liam. Conversations continued as we huffed and puffed up the many rolling hills on the Monaro Highway.
Then we took between 30 minutes and 2 hours over lunch at one of the many rest spots on the side of the road. Ania again massaged me and anyone else who was having difficulties after the morning run, and we set off once more for the afternoon walk.
Except for the first evening, when we walked over 21km out of Canberra and stopped at the paintball facility on Old Tuggeranong Road, we finished the walk before sunset and had plenty of time to relax prior to dinner. Initially we were somewhat restrained in evening activities, but as the trek wore on and it became apparent that everyone was going to finish, the evening’s dinners became more extended and even more social. I was given a lesson in pool (and pool hustling!) by David Hirst one evening; on another we relaxed in the spa at the Best Western Marlborough Motor Inn in Cooma.
The trip was well planned and marshalled by Matt Carroll—who is the public officer for the newly formed Centre for Economic Stability—and as the days went on, various walkers would take on additional tasks to make things run more smoothly still. Peter Renshaw and his RAAF buddy organised the walkers (who normally left an hour or so ahead of the running group each morning so that we’d finish at roughly the same time for lunch); Dave Lawson became de facto camera man; and prior to the event, Colin McKay arranged and paid for the printing of the T‑shirts.
Duncan even became our de facto “Choice” man for Swags, testing setting one up and sleeping in it overnight (or at least until 3am, when the Jindabyne Council sprinkler system turned on!).
Steve Keen’s Debtwatch PodcastThe Walk was a wonderful instance of how cooperation can turn a potentially arduous task into a pleasure.
Though I’m sure we would have ultimately tired of the Walk had it gone on for another week or so, by the final day there was a sadness that it would soon be over. The walkers set out early, led by Peter Renshaw and his RAAF buddy (who prefers to remain nameless—let’s call him Duncan), and Dave Lindburg and I set out an hour later for our final run. As usual, Dave beat me to the finish at Charlotte’s Pass; then after a safety briefing by Peter and Duncan, we set out for the 18km return journey to the summit.
I was pleased to be joined for this stage by Peter Martin, the Economics Correspondent for The Age. Peter was also there for the start of The Walk at Parliament House, but the 9km from Charlotte’s to Kosciuszko gave us far more time for a detailed conversation about why neoclassical economics—the dominant school of thought that, until the GFC occurred, did not believe that such events could occur—was so badly flawed.
The weather was mild at the start of the day, and turned severe as only alpine regions can. As we walked towards the peak, we found ourselves inside a cloud with wind speeds approaching 50 km/hr, and the wind chill factor drove the effective temperature well below zero. The warm weather gear I’d bought for The Walk—running gloves, a gortex jacket and running skins– finally came in handy, as did the cold weather gear that has got me through several winters in Norway and Romania. I reached the peak looking like more arctic explorer than jogger.
Unfortunately that meant my “I was hopelessly wrong” T‑shirt was buried beneath several layers of clothing. I began to take them both off for the sake of the photographic proof that I wore the T‑shirt all the way, as required by the bet, but once again, the self-organisation of the group saved the day. Dave Lindberg had realised this might happen, and had carried a spare T‑shirt just in case. We pulled it over my head with frozen fingers in a gale, and the final photos on the peak were taken.
We then waited for everyone else to arrive—including Nina Shedrin, at 59 the oldest member of the group and the only woman (apart from Ania) to cover the entire distance. All touched the pillar of stones that marksS the country’s highest spot. I finally sat down to enjoy the feeling of having finished a substantial task—and to get out of the bloody wind.
Then we downed the rations that our RAAF contingent and Peter had brought with them, and finally, after too long in the wind, started the 9km journey back to Charlotte’s Pass.
Part of the way there, Peter Martin and his two photographers peeled off to stay in the Kosciuszko Hut and file their story—Peter noted on the way that he was looking forward to filing an economics story with the byline of “Peter Martin, Kosciuszko”). The rest of us walked on, and then waited until all were accounted for before driving back to Jindabyne (Matt Carroll eschewed the car to enjoy freewheeling Australia’s longest downhill run).
That night we had our final very fine dinner at the Journey Wine Bar, after which several members of the party took to late night swimming in the lake, and some woke up the next morning having not sobered up from the night before.
I can’t finish this story any better than did Rob Burgess in his personal post on www.keenwalk.com.au, so I won’t try. In Rob’s words:
Which brings me back to where I began – that this walk was about much more than house prices. The world is in an extraordinary state of flux, as if some reckless performer were spinning too many plates before a dazzled, frightened audience. Most of us see at least one of those plates falling soon (China, Greece, housing, sovereign debt, the stretched biosphere, myriad forms of social disintegration, the stock market – take your pick), but if we are to prevent the rest crashing down around us, and start rebuilding, we’ll need plenty of good-hearted and intelligent people to stand up and act – not just to passively say “the system’s broken”, but to throw all their talents into answering the questions “What’s better?” and ”What’s next?”
On this walk I saw a bunch of people with all the tools required to get to work on this mammoth task. We may not do this together, but the choices we make in our respective walks of life will, I hope, be sustained by the memory of this epic walk – or better still by keeping in touch with and encouraging one another as this difficult phase of history unfolds.
As I dropped Nina off at her south Melbourne flat late on Saturday night, I told her what I’d said to every other member of the party as we said goodbye: “Let’s all meet and climb that mountain again in ten years’ time.”
Nina shook her head. “No,” she said, “That’s too long. Make it five.”
Thanks to all of you for giving me an experience to treasure, and a wealth of ideas and inspiration to take into the future. Keep in touch. And keep walking…
Indeed! As Burgess also observed in his post on the bet itself, “Oh dear. I hope Macquarie’s Rory Robertson hasn’t thrown out his walking boots… There’s no doubt the bet is still on – still for the taking. Yet the thought of Keen winning this bet remains a terrifying prospect.”
Click to donate to Swags for Homeless
Thanks again to everyone who took part, and to everyone who made it a successful fund-raising venture for Swags for Homeless too. And it’s not too late to make a donation… every $60 raised will give one homeless person a portable bed to make homelessness somewhat more bearable.
Staminade
Thanks also to Staminade for donating their sports drink to The Walk. I had already decided to use Staminade rather than any of its competitors because it is the only one to include Magnesium as well as Potassium in its mixture; the fact that is an Australian owned company manufacturing its product here was an added bonus.
“That’s not a knife”: email correspondence about the bet in June 2009
From: Rory Robertson [mailto:Rory.Robertson@macquarie.com]
Sent: Wed 6/3/2009 4:41 PM
To: Steve Keen
Cc: Christopher.Joye@rismark.com.au
Subject: RE: That’s not a knife…
I saw rp data ceo going to sponsor your (eventual) walk…maybe CJoye will put his hand into his deep pockets as well.
All good fun.
Rgds,
rory
—–Original Message—–
From: Steve Keen [mailto:S.Keen@uws.edu.au]
Sent: Wednesday, 3 June 2009 4:22 PM
To: Rory Robertson; Christopher Joye
Subject: RE: That’s not a knife…
Yes whoops, 40% or more (78.6 or below) is you, 20% or less is me (104.8 or above). I wrote too quickly beforehand.
With the prospect that we both might get some alpine exercise agreed, I’m happy with the terms. Chris’s ideas and the RP-Data website etc. could all be carried out as well.
Cheers, Steve
________________________________
From: Rory Robertson [mailto:Rory.Robertson@macquarie.com]
Sent: Wed 3/06/2009 4:12 PM
To: Steve Keen; Christopher Joye
Subject: RE: That’s not a knife…
Steve…please check your calculations…40% drop from 131 peak is 78.6 on abs index…that’s when I would walk.
If that 131 level is regained in any period of time after a fall of less than 20%…doesn’t touch as low as 104.8… then you have committed to walk.
recall that down 20% to down 40% is no-man’s land…
writing “I’m willing to gamble that 131 was the peak” seems bizarre to me…it’s a matter of fact that 131 was the peak…the obvious and only peak that matters..we now are betting on the trough that follows…you say 78.6 or lower, I say higher than 104.8…
talk about what might happen AFTER 131 regained short time or long time is beside the point (perhaps “a trivial peak to peak with a minor trough”)…
having said that…if abs or chris’s index ever falls 40% from its peak level in 2008 — over any number of decades — I will walk…
rdgs,
rory
—–Original Message—–
From: Steve Keen [mailto:S.Keen@uws.edu.au]
Sent: Wednesday, 3 June 2009 3:50 PM
To: Rory Robertson; Christopher Joye
Subject: That’s not a knife…
Dear Chris and Rory,
There is a definitional issue for a trough. The bet was peak to trough, and you need substantial top and bottom inflexion points to identify both–one blip at either end won’t do. But nor do we have to wait until the old peak is restored to identify a trough, which is the way Rory defined it below.
There is therefore a need to define this more precisely, but I’ll start by saying that if the index (ABS 641601, “Price Index of Established Homes ; Weighted Average of 8 Capital Cities ;”) is above 131 by the end of this year then I will walk. But if it falls below 104.8 at any time in the next ten years, Rory walks as well.
If on the other hand it falls to say 100 and then there’s a full year of rising readings, then Rory is off the hook.
I’m willing to gamble that 131 was the peak, but it’s possible that the First Home Vendors Boost could push it up past that level before the end of the year, only to see it fall again a lot more after then. My expectation of a very large fall over 10–15 years would then be vindicated, and if it’s half as big as I nominated (40%), the Rory walks–even if I have already walked beforehand.
In other words, we’ve got a Crocodile Dundee situation here: there could easily be a temporary boom–especially but not solely the FHVB, and if the bet was whether house prices would be above the March 2008 level in the next two years, I wouldn’t have accepted it. But I’m talking a large scale reversal over substantial time period. We could have a trivial peak to peak with a minor trough, followed by a “Now this is a knife” peak to trough afterwards.
Cheers, Steve
________________________________
From: Rory Robertson [mailto:Rory.Robertson@macquarie.com]
Sent: Wed 3/06/2009 11:00 AM
To: Christopher Joye; Steve Keen
Subject: RE: Website
chris and steve…i’m surprised there’s talk of confusion on basic peak-to-trough detail of bet…after all, the size of any peak-to-trough fall is set in concrete when series in question touches old high…it’s definitional…
peak was last year…whenever price series hits that old high again, whether after 2 years or 20 years, the size of the peak-to-trough fall is settled. only issue then will be whether the fall is big enough (-40%) to make me walk or small enough (less than ‑20%) to make steve walk.
chris, i’m happy for you to track/promote the bet using your measures…promoting your product by saying abs measure eventually will catch up with reality. but for me it’s neither here nor there which series we use.…growth in abs and rpdrm series never will differ by more than 5pp… if steve wants to walk sooner (via rpd-rm measure) rather than later (abs measure) that’s fine with me, but i feel no need to fine-tune details of bet.
rdgs,
rory
________________________________
From: Christopher Joye [mailto:Christopher.Joye@rismark.com.au]
Sent: Wednesday, 3 June 2009 10:15 AM
To: Rory Robertson; S.Keen@uws.edu.au
Subject: Website
Steve/Rory,
Having spoken to you both, this is what I propose to do (understanding that you reserve the right to disagree!):
1) Steve is keen for us to use an independent index that captures all properties and is happy to use the RP Data indices on the basis that I have discussed with him;
2) Rory is happy for RP Data to track the bet using their indices, but, as he noted, is also comfortable relying on the ABS measure;
3) RP Data have agreed to build for free a web-page with graphics etc that is explicitly designed to track the bet using RP Data’s indices;
4) RP Data will donate $1,000 to the bet’s winner assuming that there is agreement on when the bet is won/lost;
5) RP Data will also assist with a fund-raising campaign for the loser to assist them raise money for charity for their hike up Mt K;
6) I will have you each personally approve/sign-off on the website content before it is formally uploaded.
Kind regards,
Chris
