Good politics is bad economics

Good Politics is Bad Economics

Points To Speak

1. Government waives all the taxes for farmers in India and has done it many times. This results in fiscal deficit because govt is spending more than it has collected from taxes. It’s good politics because they will get votes in the next elections, but it’s bad economics because it increases the deficit.
2. Price Floors. This is a case when govt sets a minimum price of a good, mainly agricultural products so as to make farmers better off. In this case, prices increase and hence demand will decrease (See “law of demand” on Google). So, the surplus has to be taken by the govt and then they either destroy it or sell it all lower prices to the poor. Here again, govt is undergoing deficit spending. This is good politics because they’ll get votes, but bad economics.
3. Price Ceiling. This is a case when govt sets a maximum price for some product. Example is rents. When govt puts a ceiling on rents, supply of good house decreases but demand increases. This will lead to black markets, and bad quality apartments. This is good politics because people can afford rents but bad economics because it creates a black market.
4. Demonetization. Every other person standing in line was fascinated by the demonetization because they thought it will curb the black economy and bring the black money back. The process is still going on and we will see whether it has been successful or not. But it’s surely a good politics because it helped the BJP govt in India to win elections in many states. It’s a very bad economics because it led to a decreased GDP growth, fall in many sectors and it did cost tens of millions of jobs.
5. Economists always suggest withdrawing subsidies and welfare schemes that are not working, but no one in the ruling party follows that fearing losing voters. This results in a burden on the economy and no improvement in poor people’s lives.
6. Often ruling party announces loan waiver schemes as soon as they come to ruling just to impress voters, and this results in a huge burden on the banking system and also encourages people to take loans but to not repay in the hope of the next loan waiver scheme. Politicians always promise these schemes before elections to get elected.
7. Long term plans that include structural changes are recommended to overhaul and improve the state of many sectors. But the means modernization, loss of a few jobs and also positive results may not be visible immediately. Politicians tend to avoid this to prevent the backlash from their voters.
8. Before elections, politicians announce many freebies to impress voters. This is very bad economics because this will not improve the lives instead it is just a temporary gain. There is a saying, which often politicians ignore – “Give a man a fish, and he will be hungry again to-morrow; teach him to catch a fish, and he will be richer all his life”.
9. Good politics can also make good economics. Some countries proved it. But that require politicians with good intentions and an educated public. That gives us hope that if we create awareness in people about the long term consequences of both good economics and bad economics, people may support policies with good economics. And that results in the actual improvement of the economy and people’s standard of living.

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Good Politics and Good Economics

Let’s go global here.

International trade is a good politics because it increases relations with other countries and they help us in times of distress.

From economics point of view, it is both good and bad economics. If we go from Macroeconomics aspect, international trade is good (mainly exports) because it increases GDP, increases the foreign reserves, and strengthens the currency.

If we go from Microeconomics aspect, it is a bad economics because it effects the domestic manufacturing sector and costs a lot of jobs.

There are many more examples, but I hope you get the point.

EXAMPLE 1

Several states took the initiative of foregoing Farmers loans. They planned to waive off Farmers loans from Govt Treasury. Few states who resisted were forced to do the same due to popular sentiments and protests.

Result – Increased taxes on Fuels to compensate for the additional burden.

Sufferers – The Middle Class.

EXAMPLE 2

Waiving off metro or bus fare for women. This may seem as a political victory. No one would dare to revert it.

But : Who is at loss? Inarguably the Other half that is the male population, since someone has to pay thus the males will end up paying more in the long run.

EXAMPLE 3

Years ago, a bold Railway Minister from a Coalition Govt tried to make Railway profitable by raising some of the charges.

He was soon replaced by his party hierarchy citing to be a threat to his Party’s stature and due to the probability of losing popularity in there heartland.

Outcome – The Railways is still running in losses.

EXAMPLE 4

A particular state due to its advantage of location and higher tax revenue announces reduction in Electricty charges incuding allowing some free units of electricity.

Another state without the similar location and revenue advantage but with a new CM tries to copy the same.

Result – Untenable promise, which the next govt had to revert.

FAQs

Does politics play a role in economics?

In the U.S., government policy has always had a large amount of influence on economic growth and the creation of new business entities. For those in political power, having a track record of economic growth is often an important consideration (especially if they are in a position of seeking re-election).

Can economics be influenced by politics?

For the most part, political change and economic change go hand in hand. A basic rule of thumb is that the more a country's citizens become wealthier, the more they become engaged with politics. ... In a rentier state, the government essentially buys the political rights of the people for economic prosperity.

How are politics and economics related?

Politics studies power relations and their relationship to achieving desired ends. Philosophy rigorously assesses and studies a set of beliefs and their applicability to reality. Economics studies the distribution of resources so that the material wants of a society are satisfied; enhance societal well-being.

References:

• Will bad politics edge out good economics in 2019?