Much election-year political point-scoring assumes that public knowledge of economics is minimal. In 2004, the Coalition encouraged us to believe that the double-digit interest rates experienced during the last Labor government might return with a new Labor government. This year, Labor is suggesting, with all the fine-print qualifications the Coalition attached to interest rates last time, that it might be able to do something about grocery and petrol prices.
How easily fooled is the public on these things? On interest rates, answers to questions in the 2005 Australian Survey of Social Attitudes suggested a public without the level of policy understanding needed to evaluate the government’s claims. Respondents were asked how much knowledge they had of the role of the Reserve Bank. 6.5% said they had ‘a lot’ of knowledge, and another 31% said that they had ‘some’ knowledge. The rest admitted little or no knowledge.
Yet even these numbers may be overstating the public’s formal understanding. Another question asked how much knowledge the respondent had of how monetary policy is determined. Given that the Reserve Bank determines monetary policy all 37.5% with some or a lot of knowledge of its role ought to have also been knowledgeable about monetary policy. But instead 5% claimed ‘a lot’ of knowledge of how monetary policy is determined and 25% ‘some’ knowledge’. Some of those who think they know about the RBA need to visit its website.
Yet it is not clear that the proportion of the public who bought the Coalition’s 2004 line on interest rates is anywhere near as large as the proportion of the public lacking the necessary knowledge of the RBA and monetary policy. In a recent opinion piece Andrew Leigh reports evidence casting doubt on the role of interest rates in changing votes. In an ACNielsen poll that appeared in The Age yesterday only 31% said they believed interest rates would be higher under Labor, with 49% saying that they would be the same and 7% thinking that they would be lower.
According to Andrew Leigh, all 14 financial market economists in a Reuters survey thought that which party was in power would make no difference to interest rates. So nearly half the public holds the same view as people who study interest rates professionally. Perhaps voters compensate, in part, for their lack of knowledge by believing experts over politicians.
There is less expert commentary and so far as I can recall no surveys on public understanding of petrol and grocery prices. So perhaps Labor will find a more gullible audience for its campaigns on these. On the other hand, they are setting the same trap for themselves that the Coalition set for itself in 2004. There is even less the government can sensibly do about either petrol or grocery prices than it can sensibly do about interest rates. So Labor are gambling that luck will be on their side by the time of the 2010 campaign. As the Prime Minister is finding, though, luck isn’t a reliable ally.