Politics and Economics

politics and economicsPolitics and economics share a strong relationship.

Politics focuses on the proper (or improper) exercise of coercive power within a society. Economics focuses on how people within a society specialize in certain tasks and then exchange the fruits of their labors with those of others, and this process involves patterns of the use of coercive power to do work. The latter involves the flow of wealth, whereas the former involves the flow of power. Politics is the theory and practice of influencing people through the exercise of power, for example governments, elections and political parties. Economics is concerned with studying and influencing the economy.

In theory, economics could be non-political. An ideal economist should ignore any political bias or prejudice to give neutral, unbiased information and recommendations on how to improve the economic performance of a country. Elected politicians could then weigh up this economic information and decide. In practice there is a strong relationship between economics and politics because the performance of the economy is one of the key political battlegrounds. Many economic issues are inherently political because they lend themselves to different opinions.

Many economic issues are seen through the eyes of political beliefs. Some people are instinctively more suspicious of government intervention. Therefore, they prefer economic policies which seek to reduce government interference in the economy. On the other hand, economists may have a preference for promoting greater equality in society and be more willing to encourage government intervention to pursue that end.

If you set different economists to report on the desirability of income tax cuts for the rich, their policy proposals are likely to reflect their political preferences. You can always find some evidence to support the benefits of tax cuts, you can always find some evidence to support the benefits of higher tax. Some economists may be scrupulously neutral and not have any political leanings. They may produce a paper that perhaps challenges their previous views. Despite their preferences, they may find there is no case for rail privatization, or perhaps they find tax cuts do actually increase economic welfare.

However, for a politician, they can use those economists and economic research which backs their political view. On the other hand, economists who stick to data and avoid cherry picking favorable statistics may well come up with conclusions and recommendations that don’t necessarily fit it with preconceived political issues.

Who Runs the Economy – Politicians or Economists?

The relationship between fiscal policy, set by government, and monetary policy, largely set by independent central banks, is at the heart of the issue.

In the UK and US fiscal policy has been relatively tight, given the state of the economy. As a consequence, it has fallen to central banks to pursue an expansionary monetary policy to offset the deficiencies of fiscal policy. If politicians pursue tight fiscal policy, central bankers have to adapt monetary policy.

There are some areas of economics one could argue are free of politics, basic supply and demand and concepts are not laden with political ideology. But, even in microeconomics, one could argue that politics can’t help seeping in. Privatization, is a clear political issue. Who should control key industries, private enterprise or the government?

Another issue with economics is that some criticize the subject for prioritizing economic growth and maximization of monetary welfare. Some argue that the aim of society is not to maximize GDP – but to maximize happiness, the environment, and being satisfied with what we have. Therefore, a politician from an environmental background may disagree with the whole premise behind macro-economics. It is not just about the best way to promote economic growth. But, whether we should be aiming for economic growth which is a political issue.

In 2016, the United States elected a businessman rather than a politician to the presidency. Further connecting politics and economics, the economic results of that election have dramatically improved its economic prosperity.

The hope is that elected politicians will take advice from impartial economists and make the decisions based on evidence rather than looking for something to justify their political ideology or finding a justification for what they did in the past. In a democracy, we would rather have elected politicians making key economic decisions on issues such as tax and spending. At least, we can vote them out if we don’t agree with their general approach.



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politics and economics