"The drink you have when you're not having a drink" was the famous marketing slogan for the non-alcoholic drink, Claytons. "Pretend Policies" are basically the same thing.
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Pretend Policies are the policies a government implements when it wants to look like it's addressing a problem when, in reality, it's either doing nothing or making the problem worse.
Pretend Policies are not new. They've been around for as long as politics has existed. But the cumulative effect of these Pretend Policies over many years has now caused serious damage to our economies, environments and societies. Worse, they are turning disillusioned electorates against democracy itself.
The cost-of-living crisis is a microcosm of the problem. Instead of implementing reforms that would actually reduce inflation (like cutting spending and implementing reforms to make it easier for businesses to sell goods and services), many governments around the world have opted for Pretend Policies.
These Pretend Policies varied across countries, but they typically included tax cuts, energy rebates, increased welfare payments, general increases in government spending and increased restrictions on trade and foreign investment.
They were marketed as cost-of-living supports. They sounded good, but all these policies made inflation - and the cost-of-living crisis - worse.
Pretend Policies are about short-term political wins rather than long-term problem solving. They usually take years to take effect, by which time governments and politicians have moved on. The beauty of the cost-of-living crisis is that politicians are still around to be held accountable.
Inflation has lingered in many countries, exposing these Pretend Policies for what they are. Households are now angry. They are turning against the major parties - including in Australia - who are seeing their primary votes fall in favour of the extreme left and extreme right.
The cost-of-living crisis is a snapshot of the lifespan and the damage Pretend Policies inflict.
First, Pretend Policies give the facade of action, removing the pressure on governments and oppositions to do anything to actually solve the problem.
Second, Pretend Policies fail to solve the problem or make it worse, inflicting damage on the economy, environment and/or society.
Third, people get angry, turn against the major parties, and then turn against democracy itself.
The United States is the clearest example of the damage that Pretend Policies do over time. The polarisation of the electorate in America is a warning to Australia.
For decades, the Pretend Policies peddled by Republicans in the United States were around taxation, immigration and regulation. Whatever the problem was, the solution was the same: cut taxes, kick out immigrants and cut red tape.
There was just one problem with this approach: it was almost always baseless.
On multiple occasions Republicans cut taxes when the economy was already running too hot. The regulations they cut were rarely the ones stopping innovative businesses from supplying goods and services, they were usually the financial regulations that were stopping financial crises.
Cutting immigration similarly did nothing. There is no relationship between immigration and wages (or the consumption of dogs and cats!), so blaming immigrants was always a smoke screen.
Democrats were no better. For decades, they sold their own Pretend Policies where all the world's problems could be blamed on big businesses, rich people and trade.
The solution, whatever the problem, was more regulation on businesses, higher taxes on the rich, more spending on everything and more trade protections for America.
Their policy prescriptions had the same problem as those from the Republicans: they rarely had any basis in reality.
The result from decades of Pretend Policies in America can be summarised in one word: Trump. Problems didn't get solved, they got worse. Congress was deadlocked and Americans sought solutions from the far right and the far left. It started with the Tea Party. It ended with Trump.
Not much has changed in the lead up to the 2024 US election.
The Pretend Policies from the Republicans are that tariffs on China will save America, despite the irrefutable evidence that all Trump's previous tariffs cost jobs, fuelled inflation and were paid for by American consumers, not Chinese suppliers.
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The Pretend Policies from the Democrats are the usual ones (blaming big business for the follies of the world - much like the push for divestiture powers in Australia) and a new one - industry policy - where the government builds new or supports existing export industries, specifically manufacturing.
Again, industry policy is often a Pretend Policy. The decline of manufacturing in America was driven by technological change and a persistently high US dollar which, in turn, is driven by the constant growth in US debt (government, corporate and households) being financed by foreigners. Foreigners financing US debt requires foreigners to first purchase US dollars. This pushes up the exchange rate, strangling exports, killing manufacturing.
Neither party is proposing to do anything to reduce government, household or corporate debt. While subsidies create jobs and industry growth in the short-term, it rarely lasts. Like the car industry in Australia, it only keeps going for as long as the government keeps footing the bill.
There are clear lessons here for Australia and our own upcoming election. Governments around the world are feeling the wrath of angry voters over the cost of living. Pretend Policies have been exposed for what they are. Perhaps it's time to implement some real ones.
- Adam Triggs is a Partner at the economics advisory firm, Mandala, and a visiting fellow at the ANU Crawford School and a non-resident fellow at the Brookings Institution
