We often tend to treat economics and politics as mutually exclusive fields. Somehow the thought “Good Politics is Bad Economics” is deeply rooted in our minds. Is it actually the case? Is it possible to have both good economics and good politics? This article will take you through the various perceptions revolving around this question.

Let’s first understand how these two influence governance. Economics is majorly concerned with monetary policy as we all know that it’s the Central Bank which formulates it. Politics on the other side designs the fiscal policy of a state/country. It’s only in theory where economics is considered to be a non-political concept. However, in real-life, economics acts as the key to the political battle-ground.      

Politicians are expected to take decisions based on the advice of impartial economists on the basis of evidence. This framework has however been disrupted over the years and these positions are offered to economists who match the political ideology of the respective ruling party. Economists tend to carry their political ideals and beliefs along with them when they advise the government or formulate the policies.

While there is a conception that a policy without government intervention will function as good economics and good politics, it has actually been failing in our country. Yes, the Supply-Side Economics (deregulation, privatisation and tax cuts) is clearly not aiding the country in achieving its goal to the maximum potential. On the other side, we also have states where the economy is failing due to too much government intervention. Every coin has two sides and so does this coexistence between economists and politicians. It is very unlikely to have an economist who doesn’t have any political leaning and is solely dependent on statistics rather than manifesting/cherry-picking the data in their favour to construct the favour and back the political opinions of the administrators.

Now, why did this saying “Good Politics is Bad Economics” actually emerge?

The role of politicians started focussing more on the power and attraction of people especially from the previous generation and they began to be very firm about their ideologies and never agreed to alter it. A classic example could be the period in the U.K where Margaret Thatcher served as the Prime Minister of the country. Margaret Thatcher was very popular for her “this lady’s not turning” speech and she was lauded for being firm with her ideologies. Her words were as follows, “To those waiting with bated breath for that favourite media catchphrase, the U-turn, I have only one thing to say: You turn if you want to. The lady’s not for turning!”

This historic speech and her ideology however shattered the economy of the U.K during her period. The entire economy had to suffer unemployment which persisted for several years due to deflationary fiscal and monetary policy. Besides constant pressure from 300+ economists to ease the policy, Thatcher decided to stick to the extreme policies as she thought it was better politics and preferred it over economic well-being. It was not just the U.K, it was the case with various other countries as well. This firm tendency of politicians to stick to their policies firmly without yielding in for any prospective and effective changes has been the major reason behind the emergence of “Good Politics-Bad Economics”.

On the contrary, a research says that the human brain usually uses its entire capacity to make normal daily-life decisions, whereas when it reacts to a superior body or when it’s forming an opinion to be stated amongst a crowd, it only uses a limbic portion of itself and adapts to the herd behaviour. This is the main reason why we elect a party which results in bad economics according to the research. A political party which came to power only because of its ideology would never alter it for the welfare of the economy to retain the votes.

Democracy responds to the lowest common denominator, which is why we must always have bad (elected) politicians.

If we zero down this discussion within India, the perceptions vary and there has been positive scope for “Good Politics-Good Economics” situation in the country. An analysis by Livemint in 2017 about the incumbency of states proves how the importance and role of economics in Indian polity has changed over the years. The research categorized states into three categories; Strong Incumbency, Moderate Incumbency and anti-Incumbency. The States under the anti-incumbency category (the one where parties never or barely got re-elected in the last 15 years) like Kerala, Uttar Pradesh and Rajasthan tend to suffer in terms of its economic performance. It’s also because of the changing attitude of the demographics in this region. As we move on to the moderate Incumbent states (parties voted back to power once in the last 15 years) like Telangana, Tamil Nadu, etc., there has been a significant growth in CAGR (Compounded Annual Growth Rate) of all the states except one or two. Finally, the strong Incumbent states (parties voted back more than once in the past 15 years), have had a greater increase in growth in comparison to that of other states. So the efficiency of economics and its mutual-existence with politics has been changing in recent years on the basis of re-election of the political party.

These incidents have been subjective to the level of coordination between politicians and government and support two different opinions. However, this reiterates a classic situation of the Lamp Post Experiment. The Lampost experiment is where a drunk person seeks the guidance of a lampost to see the direction. In the same way, politicians might tend to use economics, only as a form of light in the path they had already created/followed instead of using it for illumination and gaining actual benefits from it. Using the Illumination path would drive the politicians towards the path of economic satisfaction and political as well. However, if they follow the light approach, then they will only recruit economists who match their wavelength. With that being said my friend, make sure you elect a politician who chooses the path of Illumination in his /her career.


Get The Connectere directly in your E-mail inbox !

Enter your email address to subscribe to The Connectere and receive notifications of our new content on your E-Mail