Outside the period of the global financial crisis, the most powerful message coming from these [focus] groups was their concern about the cost of living. Inevitably, the truth beneath such concerns is very complex and difficult to deal with. The most important contributions that governments can make to reducing these pressures – aside from not increasing consumer taxes – are indirect and complicated. Productivity improvements driven by regulatory reforms, infrastructure investment, and skill formation will eventually deliver higher living standards. But because this is difficult to explain and doesn’t satisfy momentary demands for action, other approaches have to be pursued.¬†

-Lindsay Tanner, Sideshow

The ‘cost of living’ debate irritates me.

On the one hand, we have commentators like Bernard Keane who describe complaints about the rising cost of living as “whingenomics“. This account goes: our standard of living is among the best in the world, inflation is moderate, wages are rising, so what are people on about? While there is a substantial dollop of truth in this account, it ignores the fact that decent economic performance, as measured by aggregates or averages, can disguise significant diversion in the lived experience of citizens: a rising tide might not necessarily lift all boats.

The other side of the debate is dominated by the tabloid press¬† and political oppositions (at the state and federal level), who seem to take great glee in convincing the public that they’re doing it tough, and that it’s the responsibility of government to alleviate any financial pressure they might feel.

A new paper by Tim Soutphommasane of Per Capita, Just Get Over It: The Cost of Living in Australia, tends towards the first of these views. Soutphommasane’s argument is more nuanced and sympathetic than Keane’s, conceding as he does that “many Australians, particularly those on fixed and low incomes, face economic pressures from rising food and electricity prices, when they do occur”. Yet the view expressed in this paper, as its title would suggest, is that “cost of living pressures” are a largely imagined problem, and that in any case it is not governments’ duty to intervene to address them beyond ensuring some minimal level of frugal comfort.

I have no doubt that some people who complain about the cost of living are reporting a largely imagined problem. People with upper-middle and high incomes seem increasingly willing to conceive of themselves as hard-done-by battlers, deserving of assistance by governments. Downward envy seems as if it’s on the rise, a lamentable development. Yet I’m less convinced than Soutphommasane that cost of living complaints are mere superficial worries that people should “just get over”.

Between 2007-08 and 2009-10, the global financial crisis period, the incomes of most Australian households declined after inflation. The bottom quintile gained a little, mostly as a result of the significant increase in pensions that the federal government implemented in that period, but the other 80% of households went backwards. Since that time, the economy has grown strongly, wage growth has returned to around its long-term average pace, and household incomes have almost certainly regained lost ground as a result. Nevertheless, the last few years have been ones of global anxiety and uncertainty, with our domestic economy undergoing spasms of structural change. Since our recovery from the GFC began in mid-2009, the cost of living for employee households has risen by 5.7%, while the headline CPI has only increased by 3.8%. Given such a backdrop, a bit of worry about household finances doesn’t seem entirely misplaced.

I don’t want to overplay this – our economy, on almost all measures, has outperformed the rest of the developed world. Our wages have risen, jobs growth has been strong, underlying inflation remains consistent with the central bank’s target. All I’m suggesting is that there are some reasons to suspect that there is a kernel of truth to some people’s complaints about financial anxiety – it is not a purely imagined phenomenon.

Setting that question aside, if we take the core argument of Just Get Over It as given and concede, for the sake of argument, that cost of living pressures are largely imagined, why has our polity seemingly self-combusted in 2011 with an overwhelming amount of concern about this imaginary problem? In my view, Soutphomassane offers too little analysis of the forces that have generated this mass hysteria. Soutphommasane implies a sort of false consciousness has taken hold across middle Australia, leading people to conceive of themselves as doing worse than they really are. Why might this be? There is some reference to opposition political parties, from Latham’s “ease the squeeze” onwards, capitalising on a generalised sense of unease about economic matters, but this isn’t unpacked sufficiently to give a satisfying account of the rise of the sense of “crisis” that has come to surround the cost of living issue.

Soutphommasane suggests that perhaps our rising collective affluence leads to rising anxiety about the cost of living: as we acquire larger houses and use more power, we become more sensitive to changes in the cost of goods like electricity. This is true, to an extent (people living in small council flats are also pretty sensitive to power prices), but this is an unsatisfying explanation of why the cost of living has proven to be a particularly potent political issue in 2011 rather than in some other year. The paper’s charts of power consumption and floor sizes show a fairly consistent upward trend for decades; there is little apparent reason why these factors should explain the sudden explosion of the cost of living as a political issue this year. The partisan contest over the cost of living and media coverage of the issue both seem to be to be prime candidates for explaining the rise of the issue’s salience, yet neither receive much attention in this paper. If Tony Abbott is determined to convince relatively affluent people that they’re doing it tough, and the media is more than happy to give him the space to do so, then it’s no surprise that people start to believe it.

While I’m in broad agreement with Soutphommasane’s view of governments’ role in addressing upper-middle and high income earners’ concerns about the cost of living, I worry a little about the narrowness of his seemingly pre-Rawlsian conception of the role of the state’s broader responsibilities. He thinks that the state’s responsibilities extend only to providing for “equal opportunity, public goods, and assistance in times of hardship”. In my view, this tends towards what Mike Konzcal memorably described as “pity-charity liberalism”, a kind of hands-off approach tempered only by support for the most disadvantaged.

Notwithstanding my various quibbles, this is a sober and worthwhile look at the ‘cost of living’ issue that is cogent in its ultimate conclusion: that there is no generalised cost of living ‘crisis’, although particular households are doing it tough.