Analyzing Good Economics versus Good Politics in Macroeconomics

This essay explores the fundamental conflict between sound economic policies and politically motivated decisions within the realm of macroeconomics. It begins by establishing that economic policy prescriptions often arise from the recognition of market failures, such as public goods, externalities, and imperfect competition, necessitating public intervention to enhance social welfare. The essay then contrasts the perspectives of economists, who prioritize efficient resource allocation and overall economic well-being, with those of politicians, who are often driven by the need to maintain political power and appeal to voters. A key example used to illustrate this conflict is the implementation of price floors, particularly in agricultural markets, which, while intended to support farmers' incomes, can lead to market distortions, surpluses, and increased government costs, ultimately hindering economic growth. The essay concludes that while such policies may be politically advantageous, they often result in adverse economic outcomes by distorting efficient free-market mechanisms and increasing government deficits.

Running head: PRINCIPLES OF MACROECONOMICS
Principles of Macroeconomics
Name of the Student
Name of the University
Course ID

1PRINCIPLES OF MACROECONOMICS
Table of Contents
Good Economics versus Good Politics......................................................................................2
References..................................................................................................................................3

2PRINCIPLES OF MACROECONOMICS
Good Economics versus Good Politics
The fundamental basis of economic policy prescription derives from the recognition
of market failure. Different causes of market failure include public goods, externalities,
imperfect competition and monopoly. This creates opportunities for well-designed public
policy intervention in order to increase social welfare1. The point of view of politicians differ
from that of economists’ perception in many ways. Politicians are mostly interested to retain
their political power. They aim to increase social welfare to attract more voters. Politics is
often seen as a random factor that creates unsystematic grit in the economic policymaking.
Good politics often results in bad economies. Example of one such policy is price floor. In
order to ensure a minimum income to seller government often set a legal minimum price.
This is particularly applicable for agricultural products. The objective is to improve condition
of farmers. In response to such policy price increases lowering the demand. This results in a
surplus in the market as supply exceeds demands. The surplus has to be bought by
government. The government then either sell the surplus to relatively poor at lower price or
destroy the surplus. This increases cost burden of government resulting in a deficit in
government budget. This is a good politics, as the policy will gain more and more votes of
farmers2. This is however, a bad economic policy as it distorts efficient free market outcome.
The resulted increase in government deficit cause a shortage of fund in other sectors of the
economy preventing growth.
1 Stiglitz, Joseph E., and Jay K. Rosengard. Economics of the public sector: Fourth international student edition.
WW Norton & Company, 2015.
2 Tetlock, Philip E. Expert Political Judgment: How Good Is It? How Can We Know?-New Edition. Princeton
University Press, 2017

3PRINCIPLES OF MACROECONOMICS
References
Stiglitz, Joseph E., and Jay K. Rosengard. Economics of the public sector: Fourth
international student edition. WW Norton & Company, 2015.
Tetlock, Philip E. Expert Political Judgment: How Good Is It? How Can We Know?-New
Edition. Princeton University Press, 2017.