“It’s the economy, stupid” has become a political cliche. Coined by Democratic Party strategist James Carville, the phrase was used widely in Bill Clinton’s 1992 presidential campaign when he convincingly beat George HW Bush.

Despite Bush having astronomical approval ratings in the year running up to the election, Clinton managed to exploit the 1991 economic downturn to win votes, despite controversies surround his marijuana-smoking (he didn’t inhale), supposedly shady business deals and alleged extramarital affairs.

The opposite is also true; it is incredibly difficult to unseat a Government that has presided over boom times — as Ming the merciless demonstrated in Oz. (A rabble opposition also helped.)

Since Kevin Rudd’s rise to leadership in December last year, “It’s the economy, stupid” has lacked its hypothesised potency. What is going on?

The run of economic data over the past six months really has been good. Many growth indicators have come in at the stronger end of expectations, including employment growth, housing finance and retail sales, while inflation and wage growth figures have remained remarkably benign.

Treasury secretary Dr Ken Henry realises the importance of these achievements, explaining in a speech on Tuesday that attaining full employment — at least using flawed official statistics — is a “staggering achievement”. The fact that it has occurred without concurrent wage-push inflation is doubly staggering.

However, as is equally clear, the Coalition still lags far behind the Opposition in the opinion polls. The latest Morgan Poll, albeit taken before the “Father Christmas” budget, showed the Labor Party retaining a 20% lead on a two-party preferred basis. Tuesday’s Newspoll showed that there had been no “budget bounce” in the week after the budget. Tomorrow’s Morgan Poll will add to this story.

As an important footnote, the latest two measures of consumer confidence show that the budget did have a sizeable impact upon consumers. Monday’s Roy Morgan Consumer Confidence rating, was taken before the budget.

It showed confidence declining marginally — although from an elevated level. Yesterday’s Westpac-Melbourne Institute measure of Consumer Confidence, was taken post-budget. It showed confidence soaring to a record level. The two measures, despite timing differences, are closely correlated for most of the time (as this graph shows), with an R-squared measure of around 0.8.

John Howard is understandably chuffed: “Not only does Australia have a 32-year low in unemployment, it has a 32-year high in consumer confidence … That is very, very good news because it shows that consumers are confident, they’re more relaxed about interest rates.”

With around six months to go to the Federal Election (tipped for November), the polls may show Howard lagging far behind the Rudd-machine, but the bookies are placing the odds much closer. The average probability of a Coalition win from the five bookmakers, Centrebet, IASBet, SportingBet, SportsBet and SportsAcumen, is 49.9%.

These bookies know, as John Howard is hoping, that when people get into the ballot box they will remember “It’s the economy, stupid”. 

Read more at Henry Thornton.

Peter Fray

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