“What a wicked game you play to make me feel this way.
What a wicked thing to do, to let me dream of you.
What a wicked thing to say, you never felt this way.
What a wicked thing to do, to make me dream of you”Wicked Game, Chris Izaak
Some of you no doubt have heard the term “wicked problem”. Simply, a wicked problem is one where the attempts to impose a solution may change the dynamics and create a new problem – the invasion of Iraq and the toppling of Saddam Hussein, for example.
Wikipedia (well, if it’s good enough for “The Best Minister In The World”) suggests that wicked problems have the following characteristics:
- The solution depends on how the problem is framed and vice versa (i.e., the problem definition depends on the solution)
- Stakeholders have radically different world views and different frames for understanding the problem.
- The constraints that the problem is subject to and the resources needed to solve it change over time.
- The problem is never solved definitively.
When governments start trying to manage the macroeconomics, there seems a refusal to acknowledge that they’re dealing with a “wicked” problem. As I’m fond of pointing out, when it comes to macroeconomics there’s never totally good news (nor totally bad news), economically speaking. An improvement in growth rates may lead to labour shortages and inflation. A disaster, such as a flood or bushfire may lead to greater work for builders and retail sales may be given a boost.
So the big problem that the current government have is that they’ve tried to present the solutions as simple, as though it’s just like physics where such laws as Newton’s first law of motion# apply. As David Graeber says in Debt: The First Five Thousand Years
“Recall here what Smith was trying to do when he wrote The Wealth of Nations . Above all, the book was an attempt to establish the newfound discipline of economics as a science. This meant that not only did economics have its own peculiar domain of study—what we now call “the economy,” though the idea that there even was something called an “economy” was very new in Smith’s day—but that this economy operated according to laws of much the same sort as Sir Isaac Newton had so recently identified as governing the physical world.”
While there are some that think that economics is simply a matter of graphs and mathematics, there are others who are beginning to think differently. Just as Einstein suggested that Newton may not have been right about everything, Tversky and Kahneman, among others, have introduced the idea of behavioural economics, which suggests that people don’t always work in their own best interests when it comes to matters economic. I mean, we all know that we should be taking more of an interest in our superannuation, but, well, it’s just so boring and besides, we’ve got more important things to spend our money on.
At its simplest, while to the economist, $40 is $40, behavioural economics understands that while you may drive ten kilometres to get an $80 toaster for $40, but very few people would drive the same distance for $40 off their new car and say that it’s not worth it.
Which brings us to Malcolm Turnbull’s assertion that we should all be afraid that Shorten’s plan with negative gearing will drive house prices down.
As politics goes, it’s a pretty crude scare campaign. However, as economics goes, there are only two possibilties: Turnbull is lying (unparliamentary, I know, I know) or else he has no idea about how difficult it would be to actually predict what would happen under the Labor Party’s proposal.
For a start, the plan is being “grandfathered”. In other words, while it could reduce the number of future buyers, those who already hold negatively geared properties have no urgent need to sell them – even if they are the “mums and dads” (What? No childless people?) we hear so much about – which could arguably cause an oversupply leading to a sudden drop in prices.
Secondly, there are many keen to buy a property who aren’t investors, but who are currently priced out of the market. A small drop in price would likely lead to an increase in home ownership.
Thirdly, the suggestion that rents would go through the roof doesn’t line up with the idea that property prices would drop, because – obviously – if property prices dropped too much while rents were rising, there are two likely outcomes: 1. People would buy their own home, because it’s cheaper than renting and/or 2. People would buy up rental property as a positively geared investment, where they actually make money.
So unless Turnbull is suggesting that house prices would fall because Shorten’s proposal of only allowing negative gearing on new housing would lead to an increase in supply dramatic enough to bring prices down to reasonable levels, then there’s no reason to think that the change would have anything other than the most incidental effect on the housing market.
But like I said, economics isn’t a science and Turnbull might be better shifting his attention to protecting the Safe Schools Program, because apparently it aims to make same sex attracted youth feel safe and certain forces within the Liberal Party are concerned about that it just encourages them to think of themselves as ok, and well, just like not torturing asylum seekers may make them undertake a difficult journey, so too, they’re arguing that unless we make same sex attracted youth uncomfortable they won’t see anything wrong with what they’re doing. Malcolm needs to stand up to these people and say that gay people have rights too, and he’s prepared to…
Oh, he’s launching an investigation into the Safe Schools Program?
Yeah, Safe Schools. I guess that does go against Liberal Party policy.
# An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.
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