It\u2019s clear that if we want to address inflation head on, governments are going to have to bring down their spending.<\/p>\n
But the problem is – spending is their favourite thing to do.<\/p>\n
RBA Governor Michelle Bullock told Senate Estimates this week that increased public spending could push interest rates higher.<\/p>\n
\u201cAll other things equal, if there are less savings in the economy – and that includes by the government as well as private sector – and at the same time investment doesn\u2019t come down, then that would put upward pressure on the neutral rate,\u201d she said.<\/p>\n
Way to kill the vibe, Governor.<\/p>\n
Because telling politicians to cut back on spending is like telling Quentin Tarantino to tone down the violence – what else are they there to do?<\/p>\n
Like all behavioural corrections, it\u2019s not enough to just tell governments not to spend so much and move on, assuming the job is done. \u00a0<\/p>\n
We need to understand the psychology behind the behaviour, and address it at its cause.<\/p>\n
Picture a politician.<\/p>\n
This is a highly ambitious person that most likely spent their formative years on the social sidelines at school.<\/p>\n
Now, every three or four years they get to compete with other politicians to be the most popular person in an electorate, and their weapons are promises they can make to voters.<\/p>\n
The higher up within their party they go, the grander – and more alluring – those promises can become.<\/p>\n
And the best part of these promises is that politicians are not committing their own money.<\/p>\n
They can use the big pool of taxpayer dollars.<\/p>\n
There\u2019s a thought exercise in \u2018Free To Choose\u2019 by Milton and Rose Friedman about behaviour towards spending.<\/p>\n
If you are spending your own money on yourself, you\u2019re going to try your hardest to find the most value you can for the money spent.<\/p>\n
Spending your money on someone else, you\u2019re still bound to find maximum value – it\u2019s your money after all – but you still do want some level of satisfaction for the other person.<\/p>\n
But spending other people\u2019s money on yourself, or other people\u2019s money on other people?<\/p>\n
Start the party!<\/p>\n
And that\u2019s where we find ourselves.<\/p>\n
Look at the culture within Parliament when it comes to spending other people\u2019s money.<\/p>\n
Sure, there are more expensive projects – but since she\u2019s in the news, how about Anika Wells?<\/p>\n