The most popular misconception in economics and politics is that if the economy is humming along, the government must be doing a good job – it must be a capable economic manager and its policies must be working. … The truth, however, is that politicians have much less control over the economy than they would have us believe.
But what does the public actually believe? Increasingly, it seems, they have become sceptical of claims that the government deserves credit for a strong economy. At each of the last six elections, the Australian Election Survey has asked:
[compared with 12 months ago], what effect do you think they [the government] have had on the general economic situation in Australia as a whole?
At each election, the proportion saying ‘not much difference’ has increased, starting at 39% in 1990 and reaching 57% in 2004. In the same time, the proportion of people thinking the goverment has a ‘bad’ effect has dropped from 52% to 8%, while the proportion thinking the government has a ‘good’ effect has increased from 9% to 35%. It seems we blame governments for recessions more than we give them the credit for booms.
In Australia, the [early 1990s] recession and subsequent disinflation were partly a policy mistake, with costs that would never have been viewed as acceptable had they been known in advance.
This mistake was one in monetary policy, and as commenter Richard (and indeed Charlton, in his book) says not making mistakes – or at least not making big macro mistakes – is an important achievement. With its successive statements on the conduct of monetary policy, effectively giving monetary policy power to the Reserve Bank, the Howard government has helped avoid derailing the good economic conditions engineered by micro reform and some global good luck.
Interestingly, poll respondents seem to give goverment less credit for changes in their household financial situation. Those saying ‘not much difference’ has been above half in all six surveys, and except in 2004 more people think that such effects are bad rather than good. Perhaps this is because tax obviously reduces household income, while non-cash benefits are undervalued. Also people are perhaps inclined to put their income down to their own personal efforts, rather than seeing how good economic policy makes earning a good income possible. (Conversely, those doing badly will prefer to blame the government rather than their own shortcomings.)
Overall, though, we can perhaps start to see why although the Howard government is viewed as better on the economy than Labor, that isn’t the electoral asset it might have been in the past. As prosperity continues year after year it becomes easier to see it as a ‘natural’ state of affairs to which the government makes ‘not much difference’, as more than half of respondents thought in the 2004 AES, and on this theory more again will in the 2007 AES. Meanwhile, rising income is due – in their minds – to voters’ own ability and hard work.
By contrast, government is still thought capable of improving health and education – areas in which Labor, albeit with no greater grasp on reality than giving the Coalition credit for the economy, is seen as the stronger of the two major parties. In this context, a Labor vote has its own logic.