A Starry-Eyed Student’s Attempt at Economic Management

Centuries ago, in the mystic cradle of Taoism, an astute Chinese philosopher said that leaders are best when people barely know their existence but where work is done and aims are fulfilled allowing the people to say we did it ourselves (Lao Tzu, 571 BCE). This ancient saying still echoes amidst the world of economic leadership wherein governments despite their complexity are still nothing but  unified leadership entities that conduct their responsibilities democratically yet undisturbingly from the citizenry, creating an economic environment that promotes stability, growth and equity.  

Before proliferating growth, economies must be stabilised which governments achieve through the implementation of policies upon overseeing the three main economic indicators. Firstly, governments must ensure that resources are fully utilised such that unemployment is maintained in a way market forces cannot put workers at idle. Through expansionary fiscal policies, incentives for work and enterprise are created thus ensuring that a country’s resources are naturally employed. Secondly, as resources are employed and output is produced, increasing that output is key. This could include further expansionary policies as well as supply-side policies that boost supply chains and exports. Through such incentives, GDP could proliferate and its benefits such as better living standards could be savoured by the citizenry. Finally, as GDP rises, further policy-making is needed to ensure that  economies do not overheat and cause inflationary or deflationary pressures. Falling prices as much as rising prices lead to uncertainty, reduced confidence and lack of investment hence maintaining prices  at stabilised levels is key to a sound economy. Therefore, governments could used contractionary monetary or fiscal policies that shrink aggregate demand and keep prices at sustainable levels. The importance of policy making cannot be understated especially fiscal polies as they promote macroeconomic stability economic busts and moderate economic activity during periods of boom (Otmar Issing, 2005).

Laissez-faire economics idealises that issues within free markets can be catered through self regulating mechanisms (Allan Parson, 1971). However, free markets and economies are not perfect and issues could always be lurking in its atmosphere. As an economy grows and stabilises, government intervention becomes necessary when specific goods maybe underprovided by the private sector, when workers or consumers are exploited by profit-oriented organisations or when business activity leads to social costs like resource depletion and pollution. For instance, The Anti-Trust laws passed in 1890 were a revolutionary use of intervention to prevent customer exploitation through restrictive trading practices ensuring that free and unfettered competition was the rule of market  efficiency (Congress, Sherman Act, 1890). Similar regulations, incentives and laws have been used in tackling issues like labour and environmental exploitation ensure markets generate more external benefits and allow sustainable economic growth

The recipe to a well-managed economy does not end until the government has ensured that income inequality and poverty does not deter everyone’s ability to benefit and engage in the economy. Through the use of progressive government taxation and rational spending, a fairer distribution can be achieved and civilians can spread social benefits with better healthcare and education leaving room for further economic growth and else disruption. When the poor has less financial burden, the worst form of inequality is circumvented (Adam Smith, 1956).

Conclusively when these tasks are sequentially undertaken by the government, their role to sustain an economy that promotes not just growth and stability but also equity and benefits to all levels of its citizenry is achieved.