The buck stops here

Sam Burmingham, founder and editor of the WeMoney Newsletter, has written an entertaining article on his blog on attribution theory. Sam’s article is provided below for your reading pleasure. As always, comments are welcome.

The events of the past few weeks have been the perfect reminder of a concept that struck a chord with me when I first heard about it back in my university days…

Attribution theory refers to “our perceptions of causality (being) distorted by our needs and certain cognitive biases”. For mine, the classic example is that we tend to attribute positive outcomes to our own abilities and inputs, whilst attributing negative outcomes to bad luck and things that are beyond our control.

As property investors and share market punters, we like to think that it is nous and skill that drive our returns on the way up, yet when markets get rocky we blame Black Swan events, Governments, regulators and pretty much anyone but ourselves…What is the reality? We’re all just risk-takers, pure and simple.

Now think about the CEOs of the companies that we invest in: Until recently, we had been led to believe that our head honcho bankers and retailers were wunderkinds – masters of the art of management; sales gurus; ruthless cost cutters; shrewd businesspeople – and they were paid accordingly. Then consumer spending heads south and they can’t blame external factors quickly enough: tax loopholes that favour online shopping; fears that the carbon tax is affecting sentiment; yadda yadda yadda… What is the truth? They still believe that their “old world” was sustainable, whereas the reality is that previous out-performance was the product of a credit-driven consumption boom.

And then we’ve got the mother of all causality distortions: Pretty much everything that comes out of the mouths of our politicians.

If you took what Messrs Swan, Rudd, Costello and Abbott have said over the years at face value, then we would collectively owe them a debt of gratitude, for without their steady hands and firm leadership we would apparently all be without jobs, our economy wouldn’t be a picture of health (*cough*) and the Budget would be in perpetual deficit…

Swanny and KRudd’s oft-repeated claims that they almost single-handedly rescued Australia from a deep recession neglect to consider the impact of the RBA’s unprecedented interest rate cuts, nor the massive boost to our terms of trade thanks to China’s hunger for our raw materials, nor the labour market reforms of the previous Government which gave employers the flexibility to cut hours rather than slash jobs.

This nonsense that the definition of “responsible economic management” is returning the budget to surplus by some arbitrary date has little to do with the nation’s finances. Rather, the pledge has become a political football which – let’s be honest – will never be met, because the target was predicated on any number of optimistic assumptions about growth, commodity prices and an ongoing debt-fueled consumer spending and property boom, with no consideration given to the risk of further global economic turmoil.

A message for Wayne & Co:

Whatever path you take, you are at the mercy of the markets; and (thanks to a lack of regulation and Governments who have been unwilling to call a spade a bloody shovel), they have grown bigger, more unstable and less predictable than you could have imagined.

You got lucky a few years ago but don’t bank on it happening again this time around.

Unconventional Economist


  1. Spot on Sam Burmingham.

    “Swanny and KRudd’s oft-repeated claims that they almost single-handedly rescued Australia from a deep recession neglect to consider the impact of the RBA’s unprecedented interest rate cuts, nor the massive boost to our terms of trade thanks to China’s hunger for our raw materials, nor the labour market reforms of the previous Government which gave employers the flexibility to cut hours rather than slash jobs.”

    Sam forgot Ken Henry’s part in all of that spin…

    The final message is what I heard at a conference last week. In fact with all the commitments like NBN, etc. how is this all going to play out if this crisis goes on for some time as it looks like doing. Commodity prices dropping and how that impacts government revenue. On TV last night…can’t remember the program, but the stats they showed was that the ACT has the highest average wage … visit to ABS 6302.0 shows the ACT is second behind WA, but for me it was a key point in productive and unproductive employment costs. No chance of any government savings in the ACT to get to a surplus … as Sam says it will never happen.

  2. Just for the record, this isn’t intended to be an anti-Labor Government rant — it’s just that their post-GFC actions and assertions have been such a classic case of attribution theory in action! But had the Coalition been in power at the time, I suspect they would have claimed credit for just as many positive outcomes, whilst shirking responsibility for everything that didn’t go their way too.

    The same goes for the rest of the world… I could have easily provided more examples; eg. Sarkozy/Merkel’s efforts to “save” the Eurozone and, the perhaps best example of all, the US Fed’s ridiculous belief that it can “save” the world’s biggest (and most debt-ridden) economy with its ridiculous quantitative easing policies.

    Thanks for posting the article, Leith. and thanks also to the rest of Team MB — y’all are doing some great things on this website! 🙂

    Any comments and feedback are most welcome, fellow Macro Business readers… Sam

    • Sam, thanks for the post, and most Australians I know just want good governance so I know where you’re coming from. I think we’re far better off in this country having lived in Europe and the US recently, however, I’m not sure for how much longer as we seem to be morphing into the US.

      • “I’m not sure for how much longer as we seem to be morphing into the US.”

        I’ve noticed this and it scares me.

  3. Politicians suffer from all kinds of psychological conditions and another one quite obvious is cognitive dissonance. When they are in power they promote certain solutions but when they are in opposition they will denigrate the same being promoted by the ruling party.

    • Fair point, JPK.

      Not mentioning any names, of course *ahem* pro-market-cum-bank-bashing Liberals *ahem*

      • Hockey’s bank bashing was based on the fact that the Banks were given massive Government support during the GFC of 2008 (FHB Grant kept their profits surging and their funding was supported by Oz Gov guarantee).

        Then the banks decided to push up rates more than the RBA cash rate increases – just to protect their profits.

        Therefore, Hockey was not commenting on the banks making private business decisions based on the flows of a free market. He had noted that the Government and the Banks had entered into an unofficial compact to get the nation through the GFC and that raising rates beyond RBA cash rate – while still relying on Government support – was totally unacceptable.

        He had every right to do this and this is not an example that proves the point JPK made.

        A far better example of this kind of cognitative dissonance would have been Tanya Pilberseck criticising the idea of boosting the FHBG when in opposiion as it would just push prices up more – and then implementing this same policy and bragging about the ‘sucess of it’. I note she has now moved on and the ALP has decided to not have a dedicated housing Minister???

        I think you were trying to show you are not biased towards either party, but I think the Keynesian inspired ALP are far more likely to fall vicitim to attribution theory. Their ideology rests on the premise that they can save the day with their skillfully crafted policy.

        The Liberals that embrace free markets, small Government and lower taxes base this approach on the beleif (correct I believe) that people are better off deciding what is best and making their own life better. The only credit the Liberals would be able to claim, was getting out of the way and allowing the market to work

        • I’ll have to respectfully disagree with your first couple of paragraphs, Stavros. However, your point re. Plibersek and FHOB is 100% spot on – as a matter of fact, I’ve written about the disgraceful FHOG/FHOB nonsense previously on MacroBusiness.

          IMHO Hockey’s bank bashing was not motivated by any “compact” (implied or otherwise) that the banks would not raise rates in excess of the RBA… I agree that the banksters relied on Govt support to get through the GFC, but with the cost of capital rising, the reality is that we’re going to have to get used to a future where interest rates are increasingly set by foreign markets and less by our central bankers.

          Rather than a passion for genuine reform and regulation, I submit that Hockey’s proposal was purely motivated by political opportunity. And it worked.

        • “The Liberals that embrace free markets, small Government and lower taxes base”

          That is just plain embarrassing! you need to do some reading on what their actual policies were not just what they espoused.

          They lowered taxes that is it. Try the First Home Owners Grant for a massive government driven market distortion! The enormously unproductive debt fueled housing bubble that you are so against didnt just happen on their watch, Johnny H was the Chief architect!

      • Hahaha 🙂 Sadly not. But at least if one understands the theory behind cognitive bias then (hopefully?!) one is more likely to identify it in their own behaviour… Now, where do I start?!

        Fortunately I didn’t do much psychology beyond that introduction… Twas economics and law for me!

  4. I’d suggest that for attribution theory to be in play,you need someone who actually thinks they have saved Australia, or whatever. Our politicians actions don’t really qualify, as they know they have not, but are obligated to spin the facts to claim they have.

  5. I like the idea of cognitive dissonance myself.


    (I know it has been disproved but is fun…)

    Off for a Red Wine as I might get hit by a Big Red Bus tomorrow! hehheh.


  6. endrortsonhousing

    Given what happened the last time the ALP had a housing minister, I think we should thank our lucky stars that they don’t have one under Gillard. If truth in naming ministerial slots prevailed they would call it the Ministry for Maintaining the National Housing Delusion.

  7. On matters economic we have a major hubris infection at the federal level.

    Neither side has any concept of what will be involved in weaning the country off credit boom economics.

    Large chunks of the economy are reliant on credit boom conditions.

    Will a grey and flat housing market keep shops selling fancy taps and toilets and other items essential to housing over capitalisation afloat?

  8. I thought we had a name for people(politicians)whose self belief far outweighed their capabilities and talent I think the real people in this country would simply call the lot of them wankers