It's tempting to seek lessons from the debris of the midterm Trumpocalypse.
One of them, which has been reinforced repeatedly for a few years now, is that incumbents are no match for voters angry about inflation.
Once friendly electorates are turning on a dime. Donald Trump regained the presidency less than two years ago on a wave of resentment about Joe Biden.
Yet 24 months later, that wave rebounded as a tsunami that has shattered MAGA's once dominant political edifice across Congress and a slew of governorships.
Not unlike the story of the 2025 Australian federal election, the US midterms may go down as an historical outlier for the extreme results they produced.
So, if there's usable political information in this American drubbing for the Albanese government it may be that there's no room for error in the era of cost-of-living pain.
This is not news to members of the government, who this week looked and sounded punch drunk after the year's fifth interest rate hike.
There's much soul-searching behind the scenes and media headlines are widely and relentlessly negative. The opposition has to some extent succeeded in linking government spending to Tuesday's rate hike, even though the evidence for that is contested.
The midterms should scare the heck out of Anthony Albanese. They show that, when it's on, it's really on.
But another lesson from Donald Trump's America is that doing dumb things doesn't end well. Especially — perhaps primarily — when it comes to the economy.
A cacophony of confusion
The US president unleashed a bold, post-logic experiment with tariffs, trade wars and an actual war. This trashed the living standards of MAGA constituents and made life more expensive for everyone else.
As experiments in economic self-harm go, it's been a doozy.
In Australia, the political contest is all about whether the federal government is to blame for rising inflation, and therefore the Reserve Bank's rate hikes.
Behind the simple headaches is the underlying reality: it's complicated.
Spending has risen under the Albanese government compared to the pre-pandemic years. In fact, there's been a step-change in the size of spending relative to the size of the economy, from less than 25 per cent of gross domestic product to more than 26 per cent of GDP.
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This increased spending, as former Reserve Bank board member Warwick McKibbin pointed out in an interview with 7.30 this week, is not a problem when inflation and interest rates are low.
Once inflation takes hold, however, the story becomes more challenging, especially in an economy running hot. And it means there's less room to absorb shocks, such as a demand-side boom of AI investment or a supply-side hit to crude oil prices.
Those shocks mean that something else has to give. Reserve Bank governor Michele Bullock made that clear in her post-rate decision press conference this week.
"I want to be very clear that we are not tightening monetary policy because of the direct impact of oil prices on inflation," Bullock began.
"I know there is confusion in the community, so I want to be very clear. Monetary policy cannot impact global oil prices. Rather, the tightening in monetary policy is to address domestic capacity pressures."
A cacophony of commentators are now demanding the government use next month's MYEFO to cut government spending and take more pressure off domestic demand.
Like Trump's self-harming trade wars, this may turn out to be very bad short-term advice. Particularly if the Reserve Bank is right about what looks to be around the corner for the economy.
A debate worth having
Cutting federal spending may be a good idea over the longer-term — and it's a debate worth having, as it goes to the heart of the social contract between citizens and government.
But it looks like being the right prescription at the wrong time.
Buried in the Reserve Bank's statements this week is a startling forecast for a collapse in business investment in the second half of 2027.
For all the anxiety about too much economic activity happening at once — and therefore pushing up prices for everything from materials to workers — the current investment surge looks like it will be short-lived.
Five interest rate hikes in 10 months will have that kind of impact. The property market has tanked far more than the Treasury anticipated in the May budget.
There's a widening home construction industry strike unfolding, and there are serious cracks emerging in what's known as the private credit market, which is where non-bank investors have lent money to builders.
Banks, supermarkets and even tech firms like Canva are sacking workers. There are no doubt many reasons why David Jones has hit the fence, but rate hikes would not have helped its fortunes.
As scarifying as many of these developments are, some are the consequence of policy choices both recent and longer-term.
If you think the federal government should cut spending more aggressively to avoid "crowding out" the private sector, it probably should have done so in 2023 or 2024.
The effect of doing that, via a smaller government footprint on the economy, would now be showing up in the data.
Governments, state and federal, would be less "responsible" for today's inflation.
And it's worth noting that there has been a "fiscal retrenchment" over the past two or three quarters. Government spending has not grown at the pace it was growing at, and the deficit shows signs of narrowing faster than anticipated in the May budget.
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Voters endorsed this
But notwithstanding that more recent shift, the fact remains that voters endorsed the current fiscal settings, whether they realised it or not.
Labor was re-elected in a landslide last year with a platform to expand government; a platform that was largely copied by the opposition's "hold-my-beer" approach to election promises on things like Medicare bulk billing and defence spending.
Critics will point out that the May budget was an opportunity to change course and the government squibbed it, which may be true, but either way this is where we are now.
The Reserve Bank is doing the heavy lifting on managing the economic cycle rather than governments. Perhaps it's doing far more than it otherwise would have, had fiscal and monetary policy been more aligned.
But slashing spending in next month's mid-year economic update may end up exacerbating a downturn that's already happening. If the economy does cool as much as the Reserve Bank is predicting, governments would be part of the reason the lights stay on.
And whatever else you might hear, fixing budgets without burning down the house requires persistence, attendance and time.
A hasty fix that crashes the economy might quicken Labor's march to a Trumpocalypse of its own making.
