Wednesday, April 2, 2025

Are you better off now? That's Dutton's trick question

For most people, the simple answer to Peter Dutton’s repeated question – are you better off today than you were three years ago? – is “no, I’m not”. But if Dutton can convince us this is the key question we need to answer in this election, he’ll have conned us into giving him an easy run into government.

Why? Because it’s the wrong question. It’s the question of a high-pressure salesman. A question that makes the problem seem a lot simpler than it is. A question for people who don’t like using their brain.

And it’s a question that points us away from the right question, which is: which of the two sides seems more likely to advance the nation’s interests in the coming three years?

Economists have a concept called “sunk costs” – money (or time) that you’ve spent, and you can’t unspend. Economics teaches an obvious lesson: you can’t change the past, so forget it and focus on what you can change, the future.

But, since it’s become such a central issue in this election, let’s dissect Dutton’s magic question. For a start, it’s completely self-centred. Focus on what’s happened to you and your family and forget about what’s happened to anyone else.

Similarly, the implication is to focus on the monetary side of life. Forget about what’s happened to the natural environment, what we’ve done to limit climate change, and what we’ve done about intergenerational equity – the way we rigged the system to favour the elderly at the expense of the young.

Next, Dutton’s question is quite subjective. He’s not asking us to do some calculations about our household budget or to look up some statistics, just to say whether we feel better or worse off.

Guess what? This subjectivity makes us more likely to answer no. As we’ve learnt from the psychologists, humans have evolved to remember bad events more strongly than good events.

This is why most people believe that inflation is much higher than the consumer price index tells us. As they do their weekly grocery shopping, they remember the price rises much more clearly than any price falls. And in the personal CPI they carry in their heads, they take no account of the many prices that didn’t change – which they should, and the real CPI does.

Humans find the bad more interesting and memorable than the good because the bad is more threatening, and we have evolved to search our environment for threats.

In this case, however, objective measurement confirms that most people are right in thinking their household budgets are harder to balance than they were three years ago. There are various ways to measure living standards, but probably the best single measure is something called “real net national household disposable income per person”.

Between June 2022 and March 2024 (the latest quarter available), it fell by 3.6 per cent. It may have recovered a bit in the 12 months since then, but not by enough to stop it having fallen overall.

But that’s just an economy-wide average. We can break it down into more specific household categories. Those dependent on income from wages are worse off because consumer prices rose a little faster than wages – though wage rises fell well short of price rises in the couple of years before Labor came to power. This is a shortfall wage-earning households would still be feeling in their efforts to balance their budgets.

The rise in interest rates since the last election means the households feeling by far the most pain over the past three years are those with mortgages.

This also means those who own their homes outright have felt the least pain. Most people on the age pension have done OK because most of them own their homes and the age pension is fully indexed to the rise in consumer prices.

As for the so-called self-funded retirees, they’ve been laughing. Not only do they own their homes, their super and other investments earn more when interest rates are high.

True, it’s common for elections to be used to sack governments who’ve presided over tough economic times. Be in power during a recession and you’re dead meat. So elections are often used to punish governments, on the rationale that the other lot couldn’t possibly be worse.

But the side that benefits from such circumstances, taking over when everything’s a mess, won’t have it easy getting everyone back to work and having no trouble with the mortgage in just three years.

I can remember when the Morrison government was tossed out in 2022, smarties among the Liberals telling themselves this probably wasn’t a bad election to lose. Why? Because they could see consumer prices had taken off and had further to go. Using higher interest rates to get the inflation rate back down would be painful and protracted, possibly inducing a recession.

This is why Dutton’s question is so seductive to people who don’t follow politics and the economy, and don’t want to use their grey matter. “If I felt the pain on your watch, it’s obvious you’re to blame and you get the sack. Don’t bother me with the details.”

Remember, however, that all the rich economies suffered the same inflation surge we did, all of them responded with higher interest rates, and most suffered rising unemployment and even, like the Kiwis, a recession. But not us.

So let me ask you a different question: over the past three years have you ever had cause to worry about losing your job? Have you spent a lot of time unemployed while you find one? Have more people in your house been able to find work?

Our employment rate is higher than it’s ever been. Our rate of unemployment is still almost the lowest it’s been in 50 years. This has happened because the Albanese government and the Reserve Bank agreed to get inflation down without a recession.

But the price of avoiding recession is interest rates staying higher for longer. If you think Labor jumped the wrong way, kick the bastards out.