Are people taking economic growth for granted?

As commenter Richard notes, Oznomics author Andrew Charlton has an op-ed in today’s SMH arguing that:

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.

Unlike most public opinion on economic subjects, this is an arguable case. As economist blogger Stephen Kirchner argues in the latest issue of Policy:

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.

63 thoughts on “Are people taking economic growth for granted?

  1. No Rik, unions didn’t make those things possible; improvements in knowledge, technology and production processes have been the key drivers in improving living standards and in making the things you mention possible. Of course, unions may have had a role in making what was possible a reality, or at least making it a reality more quickly than would otherwise have occurred, although it is also possible to argue that unions sometimes delayed improvements in productivity and thereby forestalled the achievement of such improvements, or restricted them to a subset of the population at the expense of outsiders.

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  2. thanks for the enlightenent Tom.

    So it was really the bosses who kindly granted such conditions as the 40 hour week and minimum wages on the working classes and the workers didn’t even have to strike to get them…is that what you are saying…? there are millions of workers (some now retired or passed on) who fought for those conditions Tom, you should hang your head in shame for even attempting to say otherwise.

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  3. Actually Rik, kindness probably had little to do with it. Employers compete for employees. If they offer worse conditions than other employers, then they have to compensate the employees with higher wages. In labour economics, these wage differences are known as compensating differentials.

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  4. Thanks Damien. please read the following… “Labour Day is a public holiday celebrating the achievement of the 8-hour day in the late 1850s. The Stonemasons who believed in eight hours labour, eight hours recreation and eight hours rest, spearheaded the movement: – After a long battle, the unions eventually achieved their aim and held parades to celebrate their victory.

    Around Australia the movement pushed for the attainment of this ideal and other trades were invited to participate in the celebrations. The first parade was held in Melbourne on 21 April 1856. Before this time, workers were required to work 10 to 12 hour days, six days a week.

    The five-day 40-hour week was achieved almost a century later in 1948. Today the Labour Day march is a celebration of organised labour’s achievements on behalf of the worker”.

    Damien… ‘compensating differentials’ had nothing to do with the establishment of the 40 hour week.

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  5. Rik,

    If you want to think that it is all because of the unions and has nothing to do with technological change and competition between employers, go right ahead. But it is a rather unconvincing explanation. Competition among employers for workers clearly enhances the positin of workers. If you want to work fewer hours than your current employer wioll allow, you simply look for another employer who is more accomodating. Nonetheless, the single most important factor in reducing the number of hours in which people must toil to earn their daily bread over time has clearly been technological change. Furthermore, it has improved the quality of our lives in many other ways as well.

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  6. Rik if this was all due to unions, why didn’t they acheive a 40 hours week the same day as they achieved 8 hours day?

    The thing is that there are objective and subjective causes. The fundamental cause was progress in efficiency and productivity. Unions helped to facilitate this. But it could only happen once it became sustainable due to technological innovation. Otherwise you could reduce it to 2 hours a week.

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  7. Rik,

    the first sentence of my previous coment seems a little rude (or maybe blunt is a better description?). I apologise for this. Unions probably did play a role in facilitating the reduction in hours (a shift in social norms?), as Tom and Boris have suggested. However, again as suggested by Tom and Boris, technological progress is the fundamental cause. Without technological progress, the new social norm of reduced hours would have been unsustainable without a lowering of the quality of life in other dimensions.

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  8. Damien and Boris are right that the underlying productivity of workers had to have increased enough to make shorter hours possible without serious loss of living standards. But Rik has a point that there is no inevitability in these things. One of the interesting features of the last couple of decades is that higher productivity has in general not, as many people predicted in the 1970s, been taken as shorter hours, but as higher income.

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  9. … which, given an assumption of diminishing marginal utility of income, suggests that the 40-hour week etc, may have been a bad thing even (or more so) when it was created. Perhaps we should replace Labour Day with a national day of shame for both the 8-hour day and the Harvester judgement. Goodness knows how much misery both have created over the years.

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  10. Rajat – On the other hand, much of the long-hours work is in white collar occupations which are less physically demanding and on average more enjoyable than the labouring and trades jobs that were the focus of the reduced working hours campaigns.

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  11. True, Andrew, but many modern-day tradies work more than 40 hours a week, although I grant you that their work would not be as unpleasant or dangerous as it would have been 150 hours ago. At the same time, lots of Chinese factory workers seem keen to work longer hours to earn more money: I remember reading an article similar to this some time ago: http://www.post-gazette.com/pg/06328/740719-28.stm

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  12. “which, given an assumption of diminishing marginal utility of income, suggests that the 40-hour week etc, may have been a bad thing even (or more so) when it was created. ”

    That’s interesting, never occurred to me. Indeed given that the productivity increased by orders of magnitude while working hours remained largely unchanged, suggests that this was an artificial constraint that restricted wage rise. You would expect that normal economic laws would have resulted in a more gradual decline of working hours as productivity improved.

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