THE ECONOMICS OF POLITICS AND THE POLITICS OF ECONOMICS Author: Unclear If economists know what policies are good for the economy, why don’t those policies always get used? Unfortunately, the system of representative government sometimes links good economics with bad politics and good politics with bad economics. There are at least three major reasons why this is true. The foreign debt gives us an example of how these reasons create conflict between good economics and good politics. First, some voters are rationally ignorant. This means that people make a rational decision to be poorly informed about the foreign debt. They feel their individual votes make little difference (little benefit) and it is time consuming to gather information on which to base their votes (high cost). So they rationally decide not to inform themselves about an issue such as the foreign debt. Second, special interest groups (CSOs, NGOs, Activists etc) benefit a great deal from influencing decisions surrounding the foreign debt. Therefore, they spend a lot of money to influence the government to vote to their advantage, which is often to the disadvantage of the rest of society. Since the cost of the resulting policies is spread over the general public, no one person has too high a cost and there is usually little opposition to special interest groups. Third, politicians are rationally short-sighted. They are more likely to vote for government spending than against it because it often benefits their voters in the short run. Rational politicians would rather be in office explaining an increased foreign debt than defeated and explaining why they did not support spending programs for their ministries and constituencies. When these three effects combine in the political arena, the economic policy that gets voted in is frequently far from what is best for the whole economy. That’s when good politics leads to bad economics – (extracted from an economics books and changed just a little)
Posted on: Mon, 09 Sep 2013 08:38:42 +0000
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