“Show me the incentive and I’ll show you the outcome,” said the investment legend Charlie Munger. It’s probably the most important maxim for understanding humans.
If you want to know what someone is going to do next, you only need to know what trade-offs they face. Then it becomes obvious.
Fund managers benefit from assets under management, not returns.
CEOs commit fraud because they want to make a quick buck rather than exposing the problems that’ll get them fired in the end anyway.
Company directors are hired to overlook those problems too.
Whistleblowers are hounded to protect the other problems in an organisation that remain hidden.
Sub-prime mortgage fraud was systemic because the risks were passed on to someone else, over and over again.
Most misunderstandings and conflicts arise because people faced very different incentives to the ones we presumed.
Trump’s bizarre behaviour is only bizarre because we don’t know what he wants.
My children misbehave because children come pre-programmed to test their parents’ boundaries.
The invasion of Ukraine occurred because we didn’t take Russia’s excuses seriously and assumed the costs to Putin would be too high.
Know what your enemy wants
Munger’s mantra doesn’t provide answers. It only ensures you ask the correct questions.
Today we ask what incentives our politicians face. Because they are the ones controlling the fate of investors lately.
Do they want higher or lower property prices?
Do they want higher or lower taxes?
Do they want investors to pile into Australian stocks with franked credits instead of foreign stocks?
Are they trying to improve the country, or suck it dry?
Do they care about your wellbeing?
Is public sector employment so high to buy votes or serve the country?
Are politicians trying to cut the national debt and bring the deficit under control, or redistribute wealth?
Do they want more inflation, or less?
Was the NDIS designed to help people with disabilities or to create a dependent voting base?
Are politicians more interested in the pension and prestige a former prime minister gets than the stability of the government?
If we knew the answers, we’d know what the government does next.
So, what do they really want?
Two things: money and the marginal voter. And they only need the latter to get the former.
After all, some people can only get rich by becoming a politician. That’s why so few politicians come from business.
Recently, an MP asked an interesting question in the House. She wanted to know whether any members of the government had made personal investment decisions based on leaked budget proposals.
The Speaker considered the question inappropriate – simply deemed it an accusation.
That’s because even asking the question exposes the true incentives politicians face. What actually matters in politics is how politicians can make money, not what’s good for the country.
But let’s focus on the marginal voter to find out what happens to the rest of us.
The swing voter controls the whole country
It doesn’t matter what politicians believe or stand for. What matters is how they can capture the nearest marginal voter. The next most likely person to vote for them. That’s the nature of a democracy.
An environmental policy will capture some voters from the Greens. A tax on investors will capture voters from the left. Law and order crackdowns capture some conservatives. And ‘cutting red tape’ captures entrepreneurs.
This means that a very small number of voters actually run the country. Because politicians are really just trying to get them over the line with policies.
The result is an incoherent mess. The government’s bizarre focus on woke issues, green energy, nuclear bans, intergenerational equity, Palestine and other issues are driven by trying to capture various swing voter interest groups.
What the bulk of Australia wants, and how it is affected by policy, is ignored because we are unlikely to vote differently based on isolated policies.
That’s why governments get caught out by unintended consequences. Because they didn’t care about them. The focus was on the marginal voter being targeted.
To predict government policy, you need to figure out which small group of marginal voters the government will target next.
If the Prime Minister visits a car manufacturing plant, mosque or wind power project, you know what’s coming.
Labor aimed its recent tax reform at those obsessed with intergenerational equity – the young voters.
What makes this interesting is that it’s One Nation’s turf. The economically stuck were protest voters who believed the major parties represented older generations. Labor tried to position itself as the party of young have-nots.
Imitation is the sincerest form of politics
Pauline Hanson likes to point out that the government and opposition have a habit of copying her policies. That’s why criticising her party for a lack of policy is so enraging to her supporters.
This is a common phenomenon. The mainstream parties across Europe, Canada and the US have long since adopted what used to be far-right policies. Immigration crackdowns, deporting criminal migrants, abandoning Net Zero commitments, bringing online large gas power plants, reversing nuclear phaseouts and plenty more.
The point is that upstart political parties can drag the mainstream politicians to the left or right. They do this by creating identifiable marginal voters for mainstream parties to target. Usually defectors that might come back into the fold.
And so One Nation doesn’t need to get elected to change Australia. It just needs to highlight a large number of marginal voters that can be captured by any given policy.
That’s what Labor’s tax reforms are designed to do. To pull back the voters that left the Labor Party because it refused to address intergenerational equity.
It’s also noticeable that, in the past, Labor had to steal marginal voters from the Coalition by being business, investor and wealth friendly.
Now, it has to take those voters from One Nation. That requires a very different set of policies.
The question now is which policies are acceptable to both Labor and One Nation voters.
The marginal voter that will
control Australia next
If you want to figure out what hare-brained scheme Labor will come up with next, you just need to identify the next marginal voter they can target.
I believe it’s the resources industry and its workers. The ones that One Nation is courting by promising to promote their industry.
If Labor decides the world needs more oil and gas after the mess in Hormuz, it can win voters from large interest groups in many parts of the country.
If I’m right, then this group of investors are going to get rich next.
Regards,
Nick Hubble,
Strategic Intelligence Australia
Comments