Toolbox of a Policymaker

Toolbox of a Policymaker

What creates investors, economic planning or political economy planning? These two economic tools seem to be at odds with one and another, yet they are not. It seems to revitalize a slumping economy is through a mixture of the two. Ignoring one for another will dampen any future recovery.

Economic planning is changing the interest rates, devaluating currencies, and so on. The main focus is to increase or decrease investment or consumption. This is the limit of economic planning. Two examples can explain the reason why. First, Argentina has recently devalued its currency in hopes to attract investors.

In the podcast, "All Things Considered" "by NPR, shows the limits of economic planning in the article, "Argentina's Peso Devalued." The result of devaluing the currency has lead to minor price hikes and consumers being more conscious of their shopping habits. Second, another article, "The Downside Of Keeping Interest Rates So Low For So Long," by NPR written by Marilyn Geewax states, "Many economists say such a change would be a mistake. They fear higher rates would discourage big-ticket purchases and business expansions." Throughout this article, the economists consider the behavioral effects it may have on different groups of consumers.

On the other side is political economy planning, which is to change a feature or features of the social-political environment to produce a certain movement of actors. Creating certain programs and offering benefits to something or someone is political economy planning. Firstly, a policymaker must ensure that they understand the social-political environment of their country, for each country is similar to different types of terrains. There are your actors, an established belief system, political structure, and so on. Once the terrain is understood, they must evaluate what they want to add to the terrain and what it may cause to the terrain and other terrains. There are many examples of this in The United States of America: the H-1B Visa program, the federal visa program, EB-5, and the recent move of General Electric (GE) to Boston. The H-1B program was designed to fulfill job shortages in specialized industries and it attracted numerous employees; whereas, the EB-5 attracted foreign investors by exchanging an investment in property for a fast track to a green card. Then GE was attracted to Boston because of their employees' preferences and the tax relief package it had received for relocating to Boston. But, despite the usefulness of political economy, it has it limits for it can increase investment too much to make a city unaffordable or it can place foreign workers into a tough living situation. The cost of political economy is what it does to a "terrain," as previously described.

The importance of knowing both sets of tools available to policymakers can ensure that one is aware of what may be a result of certain decisions that is taken by government. In addition, this is helpful for policymakers to understand that an effective policy deals with all tools, and not solely one. A policymaker that uses economic planning and political economy planning will be able to ensure that his or her policy can be more effective because it allows one to try to manipulate certain outcomes by using history as a guidebook.


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