Despite having a pretty reasonable record on economic management, it looks as if members of Australia’s current Labor government may have an inadequate grasp of economic theory – specifically, the role of incentive effects.

Not that they’d be alone in that; it’s a widespread disorder in public policy. Throughout the long years of the drought we were plagued by politicians and pundits who failed to understand the simple point that if water was too cheap, people were going to use too much of it.

Ditto for petrol, for carbon pollution, and for any number of other issues. And tonight we saw the same failure in the ALP. If you increase the rewards for political bastardry, then as sure as night follows day, you will encourage the supply of it.

But perhaps I do them an injustice. Perhaps this was one of those occasions where the incentive effects just had to be borne, for want of an alternative.

That does happen. Those on the right, for example, are often attacked for pointing out the simple truth that if you increase unemployment benefits, you will get more unemployment. Their opponents, instead of trying to deny it, would be better to acknowledge the existence of the incentive effect but argue (correctly, in my view) that that’s a price we should be willing to pay as part of being a civilised society.

Perhaps caucus members felt that increasing the future incidence of bastardry was a price worth paying in the effort to put the nightmare behind them. If so, I’m not convinced they were right.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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