We explain what an economic policy is, how it is classified according to its objectives, its instruments and other characteristics.
What is an economic policy?
An economic policy It is the set of measures and decisions through which a government tries to influence the direction of the economy of his country. It responds to a certain political-economic approach that the government wishes to implement, and is usually reflected in the national budget: the specific way in which a government invests its money.
Economic policies, thus, can be aimed at causing different effects in the productive and commercial circuit of a nation. A first classification would differentiate between the following types of economic policy:
- Short or long term economic policies Depending on when the desired effects are expected to be obtained: immediately or in the foreseeable future, respectively.
- Conjunctural or structural economic policies Depending on whether they are respectively extraordinary measures intended to address a problem or a temporary situation, or whether they are permanent measures that are a constant part of the country's economy.
- Economic stabilization or development policies Depending on whether their objective is to achieve a level of economic stability, that is, to overcome a crisis or perpetuate financial and commercial peace, or if they rather pursue the growth of the economy and therefore are ambitious policies.
In any case, economic policies are taken by the executive and/or legislative powers of a sovereign government, depending on the parties and interests that are governing.
Finally, an economic policy should not be confused with political economy.
Objectives of an economic policy
Economic policies can be very different from each other and have different objectives in the short, medium or long term. In that sense, we can talk about, for example:
- Protectionist policies. Those that seek to protect or favor some sector of the national economy, shielding it from free competition against products from another country or another region.
- Liberal policies. Their objective is to liberalize the economy, that is, to reduce or restrict the factors that intervene in it, allowing the market to “self-regulate”, that is, to impose the conditions by itself.
- Assistance policies. Those that pursue the improvement of the socioeconomic situation of the most vulnerable populations in the country, through plans and allocations that allow them to alleviate their socioeconomic weakness.
In general, all economic policies have the purpose of benefiting the local economy, by solving problems, that is, by stimulating certain economic behaviors and inhibiting others. Of course, there is no consensus regarding how to achieve these objectives, but there we already enter the fields of political economy or economic philosophy.
Characteristics of an economic policy
Economic policies are characterized by:
- are implemented by the government of a country or by the group of governments of a region (when it obeys international agreements).
- consist of different types of measures (called instruments) that allow the State to influence the functioning of the economy, stimulating some sectors and inhibiting others, as appropriate.
- Its purpose is adapt the economic and productive circuit to the needs of the nation thus contributing in the short, medium or long term to the improvement of the quality of life therein.
- They generally obey the ideological, economic and political considerations of the party that controls the executive and/or legislative power.
Instruments of an economic policy
Economic policies can be implemented through various mechanisms, which have a concrete effect on the economic and financial functioning of the country.
These instruments can broadly be fiscal (management of taxes), monetary (management of the issuance of money), social (management of public spending), commercial (management of incentives or loans) or exchange (management of the international value of assets). the currency).
For example:
- Taxes and duties The State can impose a surcharge on the price of products coming from other countries or from powerful sectors of the national industry, to increase their cost and discourage their purchase, thus artificially favoring competing sectors, for example, national ones. Likewise, the State can tariff products that it considers harmful, discouraging their massive purchase, or it can exempt from taxes the industries that it wishes to stimulate, making them more profitable and encouraging the purchase of their products.
- Monetary issue or restriction The State can increase or decrease the amount of cash circulating in the country, to stimulate or discourage consumption, which in turn has an impact on inflation and other aspects of the microeconomy.
- Subsidies The State can invest part of its budget in helping various economic sectors, injecting them with capital to assume part of their expenses, thus relieving all the economic actors involved, especially consumers, who enjoy a better price.
- Exchange controls These are radical measures in which a State “freezes” the exchange rate within its currency with respect to those of other countries, artificially sustaining its price, by assuming the difference in cost. This measure can serve as an emergency mechanism to stop currency leaks or promote tourism and imports, but they usually have a high cost of being sustained in the long term.
- social aid. These are monies invested in supporting the standard of living of the economically disadvantaged, whether through study scholarships, meal plans, social allowances, etc., all of which is paid from the State budget.
Importance of economic policies
The economic policy of countries is one of the main factors that intervene in their economic and commercial performance. An assertive economic policy provides productive sectors with the incentive and help necessary to generate wealth and grow, thus recovering their independence and creating more wealth, more work and more well-being.
On the contrary, a disastrous economic policy can cause the opposite, hindering the economic dynamics until making it unviable, which would have an enormous cost in the quality of life of the inhabitants of said country.
Economic policy and political economy
We should not confuse these two terms, whose similarity can be misleading. Economic policy is the economic philosophy behind the measures a government takes to control or drive the economy, even if this means trying not to influence it or drive it as little as possible.
Instead, Political economy is an academic discipline dedicated to the study of the productive circuit and its relationship with political institutions, from a multiple or transdisciplinary perspective, drawing on anthropology, sociology, history, law and political sciences.
Thus, political economy professionals study and understand the economic policies of countries.
Continue with: Economic recession
References
- “Economic policy” on Wikipedia.
- “What are economic policies?” in Blog El Salmon.
- “Economic Policy” in Yirepa, basic finances.
- “Economic policy” in Finance for mortals.
- “Economic policy” in Banrepcultural, Cultural Network of the Bank of the Republic of Colombia.
- “Government Economic Policy” in The Encyclopaedia Britannica.
