Quality or Quantity of Economic Policies: What is the priority for the government?

The main macroeconomic goal of economic policies is Economic Growth, which is the growth of total production in an economy. In other words, economists measure economic growth by the change in Gross Domestic Product (GDP), which is the change in the sum of the total consumption, private investments, government spending and the difference between exports and imports. Since, economic development is a broader term; reflecting both qualitative and quantitative indicators in a certain economy, such as education, healthcare, infrastructure, quality of private and government institutions, life expectancy, economic growth, and etc. Despite economic development is much more vital for countries, but in many economies, policymakers focused on growth rather than development. In this article, I am going to highlight the primary reasons for this paradox.

The reasons for many governments to prioritizing economic growth policies are many, whereas I would like to stress the importance of long-lasting results of policies, reputation concerns, and tax return expectations. Firstly, if the government focuses on the development of the economy, then the expected outcome of their policies will be widely known after a long period by the population, who are their voters in elections. For instance, if policymakers will decide to invest in the development of education or healthcare, then the consequences will be felt after several years, like at least five, which may be observable as the first initial outcomes of the development policies. This is a quite long duration for political parties because it is their average maximum administration period, where they can lose a significant number of potential voters.  

Another remarkable reason for procrastination of economic development is the immediate or early consequences of economic growth policies that can attract many voters and enhance the reputation of the political party. One explicit example is the unemployment reduction policies, which is the stimulation of government and private investments, resulting in the increase in GDP. Moreover, government investments in infrastructure and construction are much more observable by population than the investments in education or healthcare. Because, the majority of people value the immediate steps taken by the government, rather than waiting for the quality development of the economy.

Tax returns attained from the outcome of the economic growth policies is the third important cause of preferring growth to development. I mean, when as a result of growth policies the GDP increases, it means the unemployment rate decreases, investments and consumption increases, which means tax accumulation increases. For example, if consumption rises, that means the amount of sales taxes paid by consumers are also increases. This tax return expectation of government incentivize them to increase growth measures because the budget is the main concern for many political parties or governors. With this increased amount of budget, governments may reduce the budget deficit, and may increase the wages and pensions, which will increase the reputation of managing political party and probability of victory in the elections.

Summing up, governments are led by political parties that want to stay in power for long period, which is hard to sustain with economic development measures. Voters value immediate actions from government, like decrease of unemployment rates, increase of wages and pensions, or hearing more economically outstanding growth numbers rather than long-lasting consequences of economic development measures. It is highly risky for governments to invest in quality measures rather than quantity because they are involving higher costs and long term results, which may finish with the loss of elections.

14 thoughts on “Quality or Quantity of Economic Policies: What is the priority for the government?

  1. Reblogged this on A South African Economist and Business Leader and commented:

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  2. Wow!! so excellent understanding at your age!!
    You can get a place in the Economic Affairs department of any country.
    Based on your understanding, how do you suggest that India come out of its current state of a lowered GDP, rising unemployment and subdued Industrial activity?

    Like

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