Monday, January 12, 2009

Recessions and voting behaviour

Paulie links to Matthew Taylor who argues that since the average family will actually be better off in 2009, that this might be bad news for the Conservatives.

I think he's wrong and by extension it might serve as a refutation of 'rational choice' models of voting behaviour that assume people vote according to their own material self-interest?

There is nothing unusual about the majority actually being better-off in recessions. Owners of businesses find their profits squeezed and some fold altogether. And it goes without saying that for those losing their jobs, recessions and depressions are a personal disaster. But most people neither own businesses nor lose their jobs and for these the general pattern is for them to see their disposable incomes rise.

What we are seeing now has conformed to a familiar pattern. Subsiding inflation - indeed the threat of deflation - means cheaper money, which in turn means existing loans are cheaper to pay off. And with actual deflation, people on fixed incomes actually see their real incomes rise. This formed part of Keynes' critique of the classical notion that labour markets 'clear'. "This is all very well in a world without institutions", he said (I'm paraphrasing from memory - I'm a lazy bastard - you know the drill by now), "but life ain't like that. In the real world, wages are 'sticky' downwards". In real terms, labour becomes more expensive so firms economise. This generally is good for people who remain in work - but obviously sucks for people losing their jobs.

But the majority that remain in work and who are almost always better off have never, to my knowledge, rewarded a government for this. It might not be quite the opposite of selfishness: perhaps the more fortunate voter thinks, "Shit, I could be next for the dole". Or perhaps they are adversely affected personally by the social costs of higher unemployment. But for whatever reason, the perception that a government has presided over economic failure doesn't bode well for them at the ballot box - regardless of the fact that a majority of the voters might actually be better off.

On a related point, I'm concerned that the government's policies might not work because of the way people's expectations of the future tend to take hold. I feel this myself. Twice in my incompetent life I've made sensible financial decisions - rare things for me. Got myself a fixed-rate thingy just before interest rates started to rise - then got myself a variable one just before they started to fall. I wouldn't like to tell any London readers how cheap my mortgage is right now because they would probably cry. But the thing is, I'm not thinking, "Hooray - think I'll go out spending for Queen and country". I'm thinking, "Better not get used to this - this ain't going to last".

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