Why are most politicians incapable of actually explaining anything?
Do you remember when your parent used to say “because I said so!”? You knew there was more to the story but you knew they just didn’t have the time or energy or will to explain why!
Take the now defunct carbon tax as an example. Observing the debate it seemed to me that politicians typically lack sufficient skills to convince any kid they need to eat their greens, let alone the voting public that it needs to pay more for the things they buy!
Pollution is a negative externality, an undesirable by product of another productive activity and is an example of market failure. Everyone accepts that the cost of an item on the shelf is determined by the factors of production that go into producing it. What most people are not conscious of is the hidden costs, those that aren’t obvious, the costs that we all bear whether we buy the product or not. The most obvious example being pollution.
Price is a rationing device and the only way to make consumers bear the true cost of a product, and perhaps change their consumption patterns, is to internalize or price the hidden costs, in other words, make them pay for it.
For those who have teenage children, how many times have you caught yourself saying things like, “wait til you’re paying the bills, then you’ll switch off the lights”! True? That’s because they don’t yet bear the cost, their usage of your electricity is not priced; it’s not internalized.
But at the same time I do feel sorry for policy makers because there are no easy answers. Opportunity cost, the alternative foregone is never more obvious than when looking at the competing claims on the budget. Every decision to spend means that some other wish has to be crossed off the list or at best trimmed back. There are also the unintended trade offs that come with policy decisions.
Ever been to a dinner party or BBQ where someone pronounces with the enormous certainty that ignorance allows, “the government should just….”?
Similarly, those that claim housing affordability will be magically fixed by changing the tax rules around negative gearing don’t seem to have any inkling (or alternative suggestions for that matter) about how the public sector would provide all that rental accommodation in the absence of investor activity and have even less appreciation of the private vs public efficiency trade off or the likely effect on rent of an investor exodus from the housing market.
One politician recently responded to the suggestion by saying “oh, it’s complicated”. Really?! They should be able to do better than that.
Explain that tax breaks for investors encourages the supply of housing in an already constrained market more cost effectively than the public sector could ever do and that it encourages a rapidly aging population to invest for the future and reduce the burden on the future public purse. Explain that housing starts are a leading indicator of economic activity and therefore jobs and the multiplier effect of house construction is huge. Building new properties has a ripple effect on consumption that is hard to replicate. Explain that the new driver of growth and therefore jobs is population growth and the houses and infrastructure and services they will demand, all 32,000,000 of us by 2033. That’s less than 20 years from now!
Incentivizing the simple ‘changing of hands’ in the property investment market may be a lot less socially beneficial than encouraging new construction. But then things are never that simple….