Politicians are very rarely economists. Economists very rarely become politicians. When an economist become a politician he/she screw things up. So The Limp…you got a choice here..be a politician or economist. (I think he is suited to be a politician…remember the malay pantun or gurindam…)
Gelama ikan duri
Bercakap bohong
Besuk jadi Perdana Menteri
Poltician often make serious economic misstep and blunder due to political pressures which often work against sound economic sense. These are some of the most common economic missteps.
Economic growth cycle
Politician do look good when there is an economic prosperity with falling unemployment. Therefore, in the lead upto elections year, their economic policy will be stimulating the economy through expansionary of fiscal and monetary policy. E.g. cutting taxes and cutting interest rates. However, then he might go to far by allowing demand to increase too much that cause inflationary pressures to increase. This leads to a boom and bust economic cycle. Just look in 1990’s, Mahathir look great during early 1990’s, than kaboom! by 1996 the economy go haywire and he started blaming Soros, the jews etc. That is why monetary policy should be handled by Central Bank, taking away the temptation of politicians to meddle in the economy.
2. Increasing National Debt.
Politician has the motivation to cut taxes and increase spending. This will invariably create budget deficit's. This needs to be financed by borrowing from the private sector i.e by isuing government bonds/securities. The long term consequence of higher borrowing levels are unnecessarily high levels of interest payments . If the government had not built up debt in the past, taxes could be cut quite easily.
The problem is a politician will not be a popular leader when he promises to cut spending and raise taxes?
In the local scene, after the monetary crisis in 1996 the dimwit started spending expansion on unproductive projects to stimulate the economy that create budget deficit. The budget deficit will be a burden for the future generation…just look at USA.. they are heavily in debt, during the current banking crisis they have to go begging to The Arabs and Chinese by asking them not to dumb the treasuries.
3. Increasing Complexity
Politicians often do something which creates positive headlines, so they introduce a new tax and benefit (such as subsidies) which sounds good. The consequence is that the tax, benefit and subsidy systems becomes very complicated with many loopholes and different levels to deal with.
4. Affect on Incentives.
Politicians often look for short term fixes without thinking of the long term consequences. To fix the fuel subsidy the dimwit increased by 40% the pump petrol price without analysing the consequent effect on inflation. The prices of crude oil at that time was at USS130. At that prices the demand and supply factors do not have much influence ….the speculators are the players. For such high gyration of crude prices an equiblrium is expected to be reach at a lower prices. Currently, the prices are teetering to the equilibrium price of US$100-110. So.... The next best moved the dimwit do is to reduce the petrol price by a small margin…are we expecting the traders to reduce the prices of foods and goods……no way Jose!
