Politics and Economics, Should They Ever Mix?

by Peter Rose 3 months ago in opinion

Can politicians manage an economy?

Politics and Economics, Should They Ever Mix?

Politics and economics, should they ever be mixed?


Politics: the art and science of directing and administrating states and other political units—the business or profession of politics—Manoeuvres or factors leading up to or influencing decisions.

Economics: the social science concerned with the production and consumption of goods and services and the analysis of the commercial activities of a society.

Please note the last line of the definition of politics. This seems to be what modern politicians and probably their bureaucratic managers (who are the ones that “interpret” and “introduce” decisions to real life activity) are good at. Political philosophy is not mentioned in this definition but we can say this is, or should be, the guiding principle by which any politician approaches any and every problem. There are many different political philosophies, from socialism to fascism and a vast number of steps between these two theoretical extremes. Whilst most modern politicians seem adept at the manoeuvring bit, they do not seem so keen on the making of pragmatic, realistic decisions on what to do in any specific case. Leadership is not part of this definition of politics. Leadership seems to be a casualty of the growth of professional party politics management. Political party management is now controlled by salaried or contracted people who have a remit to produce power for the party paying them. Leadership and conviction are less important than they used to be. They are now less important than opinion poll ratings and statistical analysis of past voter patterns.

Economics, as in the above definition, is a study of commercial activity that exists now, or has existed in the past. It is not a plan for the future. Economics is not some magic wand that a politician can wave to make everyone more wealthy. Both the extremes of political idealism, seek to control the economic activity (the production and consumption of goods and services) of the nation they govern. Socialism seeks to do this by taking ownership of the means to produce goods and services, into their own hands. Thus economic activity is not initiated, managed and controlled by commercial or technical experts, but by politicians and their appointed bureaucrats. The technology involved in any modern enterprise, is then subject to political control, not to expert knowledge. In the later Victorian era, in Britain, many manufacturing enterprises were founded and run by engineers and technically competent people. Many did not survive due to a lack of capital or financial knowledge, but the business did make production decisions based on practical technology and engineering experience. To try and make those decisions based on a political philosophy is to request disaster.

Consider a hypothetical example. Political policy is to stop the use of fossil fuels in transport applications. Politicians will seek to achieve this simply by the manoeuvre of banning all fossil fuels. Economic study will show that this is a restriction on the development of cost efficient transport. Engineering and technology studies will show that this policy will lead to a dependence on a small range of alternatives. Put together, economic study and technical experience will show that a near monopoly will be created; this will have an adverse effect on future growth and commercial activity, and it will give control and wealth to a limited number of enterprises. Now consider this hypothetical situation from an economics standpoint. Since fossil fuels are becoming less plentiful, alternative energy supplies should be found for use in transport. Commercial enterprises will seek to find efficient replacements. There will be many attempts, most will fail but a selection of alternatives will compete to become suppliers of more efficient and less costly forms of transportation. Some will still use some form of fossil fuel but in vastly reduced amounts, thus reducing the shortage effect. There will not be any near monopoly for the ruthless to exploit at the expense of the many.

Many of the more pragmatic political philosophies talk of managed economies. In these, the state does not own businesses and enterprises but seeks to control the activity of those who do, usually by financial rules and restrictions. The big curse and weakness of a capitalist political philosophy is the activity of speculators. Investment in a new idea, with the hope and intention of gaining by its success is the basis of capitalism, but speculators make money by creating shortages and/or by betting on the collapse of an enterprise. A collapse they can help become a fact by making sure the enterprise is starved of capital. Creating shortages and manipulating the financial control of any enterprise are damaging to a nations well-being. It is the activity, and the private wealth such speculators acquire, that makes socialism appear a good idea. Managed economy politics seeks to enable investment of capital to sustain growth while controlling the financial markets to reduce the activity and profits of speculators. Basically sound objectives, but the mechanics and day-to-day working of this political policy is very difficult to get right. Britain has not got this right at the moment, but what we have is better than either no capital controls at all and better than communist-style political and bureaucratic ownership, of all commercial activity.

Should politics and economics ever be mixed? They are entwined and the success of one depends on the success of the other. It is not possible to separate them, but problems arise when politicians think that they are skilled in economics.

Peter Rose
Peter Rose
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Peter Rose

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