Analysis

Labor and the gap between stated and revealed preference

It’s rare that a single piece of economic data can sum up a government’s complex political problems, but yesterday’s car sales data did the trick.

One of the interesting aspects on consumer sentiment to emerge into clearer view over the past couple of years is how artificial it is. The Rudd government was able to engineer an impressive lift in consumer sentiment in 2009 in the face of an economic crisis by giving the appearance of decisiveness in its handling, handing out cash and telling people, more or less, it was their duty to spend. Now its artificiality is being demonstrated in another way, with consistently poor (though, very recently, improving) consumer sentiment at odds with record expenditure on major acquisitions such as motor vehicles, as we saw yesterday — and, as we saw a fortnight ago, overseas holidays.

That is, people say they are concerned about the economy, but are acting in a rather more relaxed manner. Another example of the gap between stated and revealed preference.

The artificiality has also been demonstrated by the extent to which it’s now clear partisanship colours voters’ view of the economy. Coalition voters can see little but economic disaster all around them, despite a constant stream of economic data that governments of the 1980s and 1990s would have sold their blackened political souls for. Labor and Greens voters, on the other hand, take a far more positive view of the world. Apart from anything else, it suggests we should increasingly view consumer confidence surveys as heavily conditional on other factors.

Australians are spending enthusiastically on cars and overseas holidays, of course, due to the ongoing strength of the dollar, although the continuing rise in motor vehicle sales is also related to tariff cuts. The strength of the dollar is partly a consequence of the government’s successful economic management in maintaining economic growth while returning to surplus, which has pushed the Aussie dollar towards safe haven status.

Meanwhile, of course, the government has thrown money at industries such as automotive manufacturing and steel in an effort to prop up sectors hit hard by a strong dollar. Australians like seeing industries propped up. Indeed, Australians are a highly interventionist bunch when it comes to industry policy.

So, in summary, people think the government’s wretched, and claim not to believe the economy is going well, but act like the economy is going gangbusters and take advantage of the consequences of the government’s quality economic management, in turn putting pressure on the government to prop up industries that are missing out.

Labor may be at an historical low point in terms of its tactical nous and communication skills, but I defy anyone to work out how to resolve the contradictions in all that. Labor faces an irrationally angry electorate. That’s a key reason the hoped-for post-carbon price polling lift is very unlikely to materialise.

*This piece was originally published by Crikey.


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