ESSA

ESSA

The disconnect between economic policy and thought


Pat Healy

By

September 7th, 2015


Pat Healy discusses the log jam of economic decision making in Australian politics.


One of my old economics lecturers used to advise the government on economic policy. He once told me that presenting economic policy to the government can be very unrewarding. He said that what the government considers to be sound policy is often rejected under the guise of being bad politics.

This is an unfortunate and often repeated story in Australian politics. The major parties are incentivised by power to prioritise the interests of their core voters. Consequently, there is no motivation to adapt to remain relevant in the landscape of economic thought. Good politics often trumps good economic policy.

The modern political setting is driven by public relations. Too often the major parties use an oversimplified rhetoric which appeals to the insecurities of many voters. Such comments make little sense to those outside their constituency and avoid directly addressing relevant issues.  The language used by parties to represent their positions is specifically worded to illicit certain responses from the public. Tony Abbott once made comments inferring that the government “can’t stop people from being homeless if that’s their choice”. Comments like this cheapen the debate to a standard of moral relativism. More votes are won by parties which represent a populist opinion than by those who offer policies which can ensure our future.

On top of this, a lot of weight is given by parties to defending their economic position and to protecting their backers. This often leads to effective policy being blocked or repealed. Recently, this political process led to recommendations for superannuation reform to be disregarded. These reports called for the improved management of industry fees to provide a better return on investment to account holders. At the same time, policy to reduce superannuation tax concessions of high income earners was being promoted by the ALP.  The current government, though, attacked this policy. In doing so, they perpetuated the all too common fear: changes to superannuation attacks hip pockets. Subsequently, all proposals for reform were rejected, not because there were better options, but because doing so helped to maintain the support of their benefactors.

Unfortunately, the approach taken by decision makers is too rarely aimed at finding the best solutions. Within politics there is a lot of concern given to poll results. The major parties structure their economic positions to reflect these results. Consequently, ministers who fully support their party position often compromise their own beliefs, with those who do not tow the party line facing professional ramifications. Because of this, they are often put in a difficult position when important issues become politicised.  Malcom Turnbull, Kevin Rudd and Julia Gillard all lost their leadership because they varied from supposedly traditional party positions. They were punished for adapting their positions to reflect reality. This is symptomatic of a tendency in politics toward pluralistic stagnation.

Political inactivity is made worse when both sides of politics overstate their ability to address economic issues. Influenced by groupthink, politicians assume that the economic models synonymous with their position are better than their opponents’. This leads to the sustained vilification of opposing positions. Obviously they are not fully aware of the limitations their own position holds. This is an unproductive assumption. Any economic position encounters limitations in solving issues. An evidence based approach to solving issues should rely “not [on] a single ideology but a mix of several that actually work” as Kim Stanley Robinson puts it.

What’s worse, voters do not hold politicians accountable. The conscious rejection of substantiated policies should be heavily scrutinised. Such rejection has been demonstrated by the Liberal Party through their repeated efforts to repeal the Clean Energy Finance Corporation. This is a framework aimed at addressing climate change through the utilisation of market mechanisms.  While the reform may have imperfections, the funding cuts and repeal attempts are purely political. Assertions made by the Coalition, that any effort to address climate change poses an economic threat, show a clear disregard for the available evidence. Policies which are implemented without concern for facts leave too much to chance.  Voters should be more critical of the erratic nature of which policies are implemented.

Policies supported by ideology and little evidence are a gamble: they are dangerous and often have serious repercussions. They should be strictly ruled out until clear evidence becomes apparent.  To achieve this, there needs to be an improvement in the economic literacy of voters.  If the public are able to discern between effective and ineffective policy, then polls will reflect this. Hopefully this would provide motivation for the major parties to adapt their positions and implement sound economic policy more often.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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