568568 Chapter 15 | Economic Policyall have a hand in shaping economic policy. The clash between politics and economic
theory and the conflicted nature of economic policy making can be illustrated with a
few examples.
We discussed earlier the limitation of implementing Keynesian economic theories in
fiscal policy. Often political considerations make it impossible to implement the swift,
targeted action called for in the theory. That is because the budget inherently involves
debates over some central political questions: How large should the government be?
How progressive should the income tax be? Should we impose tariffs on our trading
partners to try to get them to change their trade policies? Should budget deficits be
allowed to expand to put pressure on government spending, rather than to stimulate
the economy? These are not purely economic questions but also political ones that
must be answered through debate and conflict between the opposing parties and
branches of government.
These debates have been central in the disputes over trade policy discussed in the
chapter opener. There is a strong bipartisan consensus that free trade is generally
a good thing for the United States. However, when voters in Rust Belt states rallied
to Trump’s call to bring back manufacturing jobs by ripping up unfair trade deals,
protectionist policies gained political power. When the dust settles in a few years, trade
policy may still reflect the old bipartisan consensus, or it may be more U.S. centered
and less internationally focused.
These examples are not intended to suggest that politics shouldn’t enter into
the economic policy-making process. Indeed, just the opposite. They are excellent
illustrations of the themes that politics is everywhere and politics is conflictual. It
shouldn’t be surprising when politics enters the economic policy debate. Elected
leaders should be responsive to what their constituents think about the central
questions concerning the direction of the economy.What’s
Your
Take?
How often should the
government intervene in
the economy, if ever? Do
the complexity and fragilityof the economy make
intervention here and there
necessary?Full_16_APT_64431_ch15_530-571.indd 568 15/11/18 2:35 PM