Use of economic policies

Economic policies are usually used as instruments to solve economic problems in an economy. In recent times, our country is experiencing some problems caused not by the malfunctioning of pure economic forces but by the political forces. Some of the problems that we are currently facing can be listed as  (1) higher interest rate problem, (2) slow growth of investment, (3) foreign exchange reserve bulge due to sluggish imports. To overcome these kinds of problems, suggestions are coming from different corners such as the use of consumer credits to stimulate private investment, the use of Keynesian economic policies to stimulate private investment through large public expenditures programmes, use of import liberalisation policy to offset soaring currency appreciation effect due to foreign exchange reserves bulge, and the use of foreign borrowing options to overcome the higher interest rate problem.
These kinds of different economic policies to ward off the dangers seem reasonable at first sight but viewed analytically, they may be found totally contradictory. While using economic policies to overcome some problems, the first task should be to ask whether the origin and nature of the problems welcome such measures or not. To give a simple example, the minimum wage system in the USA has taken a dramatic stage now. While the federal rate remains constant, the rate in California and San Francisco has crossed the federal minimum barriers of $7.50 per hour. Different cities and states are implementing different rates while the federal rate is still at its old position.
If this is the case, doesn't it seem how silly the argument for minimum wage is? What would the theorists supporting minimum wage say when a person who works in a famous fast food restaurant named McDonalds  bagging the federal minimum rate of $7.50 for the last five years? Doesn't he deserve a higher wage than $7.50 per hour even after working for five years at a row? The same crisis is going with the Obama healthcare plan. In fact, the crisis is not with the Obama care, the problem lies elsewhere. What do people mean by the universal health care? How can one characterise that health care is up to bottom a public good that should be provided to all by the government?
The concept of public good has been quite distorted here. Before we implement, we need to assess at least what is the scope of economic policies, where they should be used, and for what they should be used. The minimum wage setting policy suffered a serious setback for this kind of consideration. People in the USA who argue against minimum wage are most often attributed as belonging to conservative school of economics such as conservative market economy thinkers.
The issue is not about who are conservative and who are not. The issue is what economics as an objective principle tells us. Personal liking and disliking should not be imposed on the objectivity of the principle. The similar case happens when people argue over Keynesian economic policies. It doesn't matter whether you are arguing in favour or against the Keynesian policies. What matters is whether you are arguing from an objective stand that the principle itself gives a testimony to your statement or not.
Coming to the issue of the above economic policy suggestions such as consumer credits expansion to overcome the doldrums in investment sector, we argue that such kind of policy suggestions have confused one vital thing and that is what the economic policies have to do with problems created outside the model. By the model, we mean the entire economy which is described by systematic relationships among multiple variables and parameters.
For example, we can think of the macroeconomic consumption function as one part of the entire model or economy and any disturbance within the variables determining and affecting consumption must be described as the disturbance arising from inside the model. For example, if people being afraid of political malpractices start hoarding wealth to buffer future consumption anticipating that in future they might have less income, then their consumption in the present period will be less, and if a significant number of people follow this action, soon there will be a lack of aggregate demand to sustain the present level of employment. This kind of economic shock is not generated by a pure disturbance in model variables but by some unwanted forces.
Another confusion arises from such policy suggestions and it is very essential to know the difference between political power and the economic power. What political power has to do with the economic power and similarly what  economic power has to do with political power? Is there any valid existence of political power independent of the economic power? If the answer is yes, then any disturbance arising from the political power should be characterised as a disturbance coming out of the model.
However, if the answer is no, then such disturbance is completely outside of the model and has no valid existence. If this is the case, then we argue that the political power is totally devoid of the economic power and it has no real existence. It exists only because of the economic power that the government and its allied organisations retain.
To give a simple example, the Keynesian economic policy can be viewed from two perspectives. From one side the Keynesian economic policy can be viewed as a pure economic policy to protect a market from debacle triggered by unwanted developments. From another, it is a pure political policyfor the government to cover its misdeeds and assists in carrying out such misdeedsagain and again.
To match the distinction to a reasonable degree of reality, we can ask the following simple question: What motivates the political parties in our country to impose havoc on our economy by their political tussles? Wherefrom do they derive such kind of freedom to carry out destruction? They do it because they have the incentive to do, not because they are empowered by some divine power to do so, and the incentive is most often given by economic policies and not by anything else.
Let us mull over the issue of exchange rate appreciation due to foreign exchange reserves bulge caused by the sluggish import growth. When somebody says that the Bangladesh Bank (BB) should step forward to prevent such danger of exchange rate appreciation, we can not actually make sense where the BB should step in moving forward? To remind us, we should keep in mind that the BB is not a trend setter. It is just an organisation that observes a trend and responds neutrally.
By neutrality, we mean it will respond as long as the disturbance is from inside the model. The central bank should not be burdened with the task of solving a problem that is created outside the model such as political mess.
Coming to the use of Keynesian economic policies, we see the same kind of problem. Private investment has been depressed not because, for example, Marginal Efficiency of Capital (MEC) is very low but because political instabilities are enormously high. It seems a total contradiction for what we should use the Keynesian economic policies to stimulate private investment? The argument may be that it will help to boost the economy. The boost itself is a reckoning for a downfall in the future because the boost has been caused by the entities that are empowered to inflict the same misery in the future.
It appears that the government and its allied forces have found Keynesian economic policies as shelter for their political malpractices, and this misuse of Keynesian economic policies is one of worst tyrannies in economics. Over time,  the purposes and scopes of Keynesian economic policies have been distorted partly by governments and partly by policy makers including academics. Now even a lay man can argue for Keynesian intervention in the sense that government should do something to revive the economy. The question is what should the government do? Is it actually reviving the economy or creating a refuge to survive its destruction? We just need to be clear about this before stepping forward to bring Keynes in the picture.
The question is not about who support what and who bear what kind of beliefs. The question is about the objectivity. But a person studying economics can claim that economics is not totally an objective discipline.
The word 'totally' is misleading in this case because in social science we never argue for whole objectivity which is not even possible. What we argue for is the approximation and that is the spirit of objectivity in economics as well. Therefore, let the economic policies assist our democracy imprisoning the non-democratic behaviour of our political leaders.
The writer is with the
university of Denver, USA.
[email protected]