A political leader and his role in setting the economic policy

The word Politician, a political leader, originated from the Greek word “Polis”. A politician is an individual who affects public decisions, such as decisions on the economic policy. A politician is either an individual who already serves in a government or which seeks to be elected to serve their nation or community.

The role of a politician in setting the economic policy is very prominent. According to standard economic theory, technocrats (e.g. economists) provide recommendations on the economic policy choices to a political leader who, in turn, make economic policy choices which are implemented by a bureaucrat.

Therefore, a politican is actually involved in making the economic policy choices. This is different from bureaucrats who implement the policy choices of politicians.

A politician, as a role player in the government, earns some resentment from the general public due to the perception that politicians are driven by desire to maximize votes for their next election rather than by serving the interests of the public. This is, of course, true in some cases and not in others.

Political business cycle theories (models)


A politician is a human being and has feelings, dreams, goals, desires and agendas, like any other person from any walk of life. Therefore, it is only natural that a politician may be driven by a personal agenda. This must always be kept in mind. Especially since standard economic theory assumes that a political leader is driven by the goal of enhancing the well-being of a nation rather than by desire of personal gains.

Some economic theories, however, attempt to explain a politician’s actions as guided by attempt to maximize votes. Such theories are called political business cycle theories. Political business cycle theories are further subdivided into the partisan model and opportunistic model.

PARTISAN MODEL

Based on a politician being a “partisan” of the party that he or she belongs to. Each party has different priorities and those priorities will significantly influence the economic policy decisions.

OPPORTUNISTIC MODEL

This theory was first proposed by Nordhaus. Nordhaus suggests that his proposed theory rests on 3 assumptions:

1 – The main goal of a politician is to stay in the office

2 – The current performance of the economy will affect election

3 – A politician has strong incentives to make economic policy decisions which will lead to expansionary monetary and fiscal policy to expand performance of the economy in the short run. This will be followed by contractionary monetary and fiscal policies to combat inflation (which occurred due to expansionary policies).

The criticism of the opportunistic model arises because it is unlikely that a political leader will be able to effectively manipulate economic performance in the short-term.

Empirical evidence does not explicitly and completely support models of the political business cycle.

 

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