Economics as a discipline focuses on laws that determine how economies work. Usually, this entails looking at a balance between human wants and the scarcity of resources as reflected through goods and services. Economics essentially dwells on tackling these two issues in order to derive maximum satisfaction. Sometimes markets can solve their own problems or government interventions can be made. Economic interventions may appear essential to society’s functioning but their unforeseen consequences make them unreliable
Government interventions have not always led to desirable results especially in monetary intercessions.
Issues of hyperinflation (a state of exponential decrease in the value of a currency) have affected a number of societies very negatively. One such example was the South African country of Zimbabwe. At its worst economic times, that nation got to a point where citizens could not estimate how much they were going to purchase a kilogram of sugar in one evening even after buying it a certain price that morning. This changed such a society from being a net exporter to net importer and eventual dependant. The country could not feed its people and started relying on humanitarian aid for survival. Continuous government involvement in Zimbabwe’s monetary policies is what led to the problem and contributed to its propagation (Bean, 58).
Government solutions may not always work because governments tend to depend on economists to base their decisions. However, economists tend to disagree on even some of the basic economic issues affecting nations. For example, in 1930, the United Kingdom was going through a very tumultuous time.
Unemployment was rife and the economy was doing very poorly. Experts and analysts in the Treasury advised the then Prime Minister McDonald to increase taxes and reduce social benefits especially for the unemployed (Boettke (a), 225). The net effect of these actions was that citizens no longer had the monetary ability to keep purchasing commodities and businesses eventually had to close because of low purchasing power. In other words, the economic depression only got worse.
It was at this point that another economist came up with his theory of expansionary policies. The theory focused on income, money and the economy. The latter approach served the UK well and put it back on its feet. However, expansion has not always been the ultimate solution that it has been marketed to be because some countries have tried it and failed. The United States has struggled with the revival of its economy even after President Obama set out to inject more investments into it upon his election. This has not worked well for the country and has even led to the waning popularity of the leader (Taylor, 15). The lack of consensus on important matters such as how to handle a recession put into question the ability of the government or its stakeholders to solve some of society’s problems through economic intervention. Some people argue that efficient management of the economy is critical to existence of a good society.
However, this kind of management can be done on a micro level and on a macro level. The macro level leans towards government intervention while the micro level leans towards free market economics. Since resources are scarce, a good knowledge of how the economy works allows for optimization of these resources and hence enjoyment of efficiency. Good societies should therefore be those ones that use fewer resources or waste even less; issues that can best be implemented on a micro level. Furthermore, citizens that manage their economies well will allocate their budgets more efficiently especially as a result of the opportunity cost principle and this will lead to better growth (Financial web, 22).
This principle refers to the benefits that have to be foregone by a decision maker when shifting from one opportunity to another one that may be better. To understand the argument, consider a person who had a certain amount of money in the bank, choosing to take this money from the bank into the stock exchange would mean that the person will forego interests in the said bank but will be looking forward to the benefits of owning stock. The opportunity cost would therefore be represented by that decision to change investments. A good society is often run in the same manner.
Policy makers cannot always keep recognizing the opportunities that are likely to benefit their citizens so personal initiative by the said members should be advocated. It should be noted that although consumption leads to economic growth, this can only occur when the right choices are made on what to buy and what to save by market players. A well functioning society should be one that produces results for its inputs. In other words, if a society injects certain amounts of cash into the economy then the expected outcomes should be profitable. Once no change is recorded or a negative one arises then such societies will start degrading. Issues such as unemployment and higher poverty rates are common in societies that reported no economic gains. One can therefore say that prosperity is highly determined by a stakeholder’s ability to plan for these gains.
Failure to do so may create a breeding ground for a number of social evils. When a country’s economy is poorly operated by specific economic players such as lending institutions then such a society is likely to report immense levels of instability. This is because a poorly operated economy directly translates to monetary impacts among specific individuals and severely limits their ability to maintain their standards of living. A case in point was the US economic downturn that started in 2007.
The lives of Americans were affected directly because they had to forego some of their essential needs such as housing and the like. Statistics show that the amount of foreclosures in that year alone reached an overwhelming 1.5 million (Ivry, 2). Poor decision making amongst market lenders led to the crisis; which was an issue that could have been prevented if the market played by the rules. If governments continued with interventions that were economically inclined then such societies are likely to report greater incidences of negative externalities (outcomes created by businesses that affect communities negatively) compared to those societies that do not make economically based interventions. As such, a government that over stimulates its businesses would result in higher environmental degradation than one that does not bother with these issues. Additionally, a society with too much economic intervention would also have very minimal social goods and services.
For example, public transport would be unattractive to investors and may therefore be severely lacking in such kinds of societies. Issues such as universal education and public healthcare would be put at the periphery because they focus on increasing social well being over profitability (Sadowsky, 47). Therefore one can argue that sometimes the way to having a prosperous society is not just to focus on the economy because humans are concerned with other issues as well. The phenomenon of globalization has become a common topic in almost all spheres of life.
Staunch economists would argue that globalization favors greater resource efficiency and better production so it should be encouraged. These economists would therefore advise governments to perpetuate globalization. However, non economists hold that globalization is unfair because it benefits owners of capital or wealthy nations at the disadvantage of poor ones. Developing nations get stripped further by expanding multinationals and this may not always be a fair way of solving society’s problems. If government interventions endorse it then this could lead to greater income disparities between nations.
Economic policies and interventions may sometimes focus on profitability over the overwhelming social good. Most policies in this arena are likely to lead to greater social inequality; eventually, this may cause social conflict. For example, if there was a developer who wanted to transform a local county by building a shopping mall, he may need to clear play grounds for children and increase traffic in the city. An economist would support such a move even if it would cause pollution and deny orphans or poor children spaces to play. If the government were to make economic decisions, then it would allow such a developer to build his land. When the least disadvantaged are ignored then society only puts itself in a position where clashes between one class and another can result. Matters of accessibility to better opportunities may also be a challenge in the economic arena because here, economic experts often pay minimal attention to matters of social justice yet they are just as important as the economy when handling these challenges. Before endorsing a certain way of doing things, it is always essential to look at the repercussions of using that method on social organization.
The manner in which things are done in this realm may sometimes cause controversy on the role of economic interventions in the functioning of a good society. In the discipline dedicated to this subject of the economy, most theories are often made based on a number of assumptions. One of them is ‘putting other factors constant’.
This assumption has severe repercussions because sometimes analysts may forget about that assumption or may not seriously take the result of having the other factors in the equation variable. This leads to misleading policies and unwanted results that contribute towards the detriment of society. Matters of the economy rarely have straight forward responses (Boettke (b), 95). For example, one cannot simply say that implementing minimum wage laws will result in greater unemployment. This is because if the market wage rate is lower than the minimal wage law then some degree of unemployment may result. However, the degree of unemployment cannot be predicted.
Also the effect and execution of that unemployment is difficult to determine as well. Some employers may opt to adjust their wages to the legal requirement while others may not and this could substantially alter the effect that their decisions have on the economy. A government intervention such as the one above is therefore not a guarantee to sound economics or a well functioning society.
To some extent, economic management contributes to better living standards and better monetary benefits because without it, resource utilization and need satisfaction will be placed on the periphery yet these are essential parts of human living. However, these are best done on an individual level. One can argue that too much emphasis on economic interventions leads to reduced attention on social issues such as poverty, environmental hazards as well as social inequality. Additionally, experts in this field of economics (who always advice governments) tend to have divergent views on the things that matter the most thus leading to controversial solutions.
Boettke, Peter (a).
After Samuelson, who needs Adam Smith? Political economy journal, 3(1971), 225 Ivry, Bob. Foreclosures hit 1.5 million in US housing bust. Retrieved from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahwzaBwuNaII Accessed on 20th November Boettke, Peter (b). Analysis and vision in economic discourse.
History of economic thought journal, 14/919792): 90-95 Taylor, John. How government actions caused and prolonged the financial crisis. NY: Hoover institution press, 2010 Bean, Charles. Lessons for monetary policy. Inflation and monetary policy report, (2008): 368 Financial web. Importance of the economy. January 2010. Retrieved from http://www.
finweb.com/the-importance-of-the-economy accessed on 18 October 2010 Sadowsky, James. The constitution of economic policy. American economic review 77(1987): 47