Politics, Policy, and the Economy

As a public policy student, one of the areas that I find most interesting is the impact of politics on the policies that are pushed within the political sphere. An excellent example of that intersection is the current debate over the economic stimulus package.

Within economic circles there are two main economic thoughts on the governments role in the economy (particularly in times of recession). The first is the Keynsian school of though. This suggests that government should spend more in order to prime the pump and get the economy moving in the right direction. A historical example would be Roosevelt and the New Deal, as a fix to the Great Depression. The other point of view is the Friedman camp, which generally favors tax cuts, the prime historical example would be the trickle down economics of the Reagan era (without the massive budget deficit brought on by defense spending). In Washington most Democrats lean towards the Keynsian school of though and most Republicans towards Friedman, with the caveat being that tax cuts are generally more popular with the general public then tax increases. These factors come into play as President-elect Obama is trying to put together and quickly pass an economic stimulus package.

Many economists, are currently saying that more government intervention into the financial markets is needed, and many of Obama's programs are Keynsian in nature. However, in order to win the support of Republicans and make the package more palatable to the general public there are tax cuts built into the policy, although, unlike under Reagan, these tax cuts are primarily aimed at the middle and lower class. Therefore, at the same time as the government needs more money in order to spend more money, we are giving individuals (who also need money but probably more then the government can give them in tax cuts) money and hoping that they will spend it on the economy rather then on paying of their debt.

Due to politics, the actual policy itself is warped in a way that may actually not be beneficial in the long run to the American people. Of course policies can be wrong and a hybrid strategy may be the most effective way to go, it is merely interesting to look at how the legislation was shaped not necessarily by what will actually have the best long term outcome, but also will be the most politically feasible. And it is a reminder that as a policy individual I must factor in politics when recommending and analysing public policies.