Economic Policy Recommendation - Report Example

Economic Policy Recommendation By Economic policy refers to the policies employed by nations through their governments to ensure stability of their economy. Up until the dawn of Keynesian economics, named after John Maynard Keynes who popularized macroeconomics and the 1930’s Great Depression, there were no tangible efforts by the US government to make the nation’s economy stable. There was the general belief in classical economics by both politicians and economists which stated that there was no need for economic policy formulation. Keynesian economics was therefore the main motivation for economic policy makers along with the result of the Great Depression. Economists that believe in Keynesian economics support the argument that government intervention in smoothing out financial crises is paramount and this should come in the form of tax breaks and significant cuts in government expenditure. Economic policy recommendations Economically unsound policies may result into a financial crisis for a country despite the good intentions of the government. This does not only call for quick response and action but also implementation of structural reforms to boost the economy. The most important step is the implementation of economic policies for economic recovery and rekindling of demand. In advanced economies, the route to macroeconomic stability is long and requires decisiveness on the part of the government in order to achieve fiscal consolidation. This means that a government has to review its choices about how it spends its money and know how much revenue it receives. It also has to restore its financial system from the ground up whilst making plans to ensure reduction in risks of recurrence in the future. Prominent economists have often received very disappointing outcomes of policies they advocated for and this in turn has heighten public concern about what can be done differently to ensure sound economic policy. Forecasting impending economic problems has also been a big issue despite the fact that many factors that come to play in an economy are really entirely not known beforehand. However most economists have admitted not seeing the unequivocal signs of these impending problems and were not able to clearly state why and how they missed them. Of bigger concern however is that many economists have not made any attempts to change their mode of analysis to ensure no repeat of the extensive risks and great uncertainty that have been experienced in the previous years. A country’s macroeconomic policy position directs the operation of crucial policy levers that include monetary, fiscal and rate of exchange policies. The first recommendation therefore should be that economists should put forth reports or publications that are easily accessible to the general public indicating the extent to which their interpretations of past events were accurate and the deductions of where and why there were errors in them. It is important to get their acknowledgement of errors in order to focus ahead and also to provide the general public an idea for evaluating future policy proposals. This is also important for scholars who are studying the subject of economic theory. Experience has shown in the past that unless there was public pressure on economists to produce reports and publications, they rarely ever endeavor to do so, on their own accord. To be effective, economic policies should be able to protect sectors that are declining and make them efficient, reduce government spending and condense public-sector financial institutions. The failure of policies to address this has in the past caused overwhelming negative effects on a nation’s economy. However, in order to combat any financial crisis, it is paramount to understand the policies that caused the crisis. We have learnt from history that to stimulate a failing economy, the expansionary monetary policy is most effective. This is a policy that the monetary authorities use to expand the supply of money whilst improving economic activity. It is successfully done by reducing interest rates and maintaining them at that level to boost output, aggregate demand, and job opportunities and encourage borrowing by banks, individuals and companies. A research done on the ‘Great Depression’ by Christina D. Romer puts forth the indication that the expansion monetary policy was a key policy in the recovery of the American economy. Policies to curb unemployment. Suggestions by ecological economists indicate that for an economy to be healthy it has to have a sustainable scale, efficient and fair distribution of both wealth and resources. There is a need for economic development policies to be goal driven as this would ensure efforts are directed toward the right areas of the economy. In the example of a local economy, a good economic development policy would work to curb unemployment by increasing the number of jobs. To do this, the government would have to get involved in the expansion of businesses which prompts cutting of taxes to motivate businessmen to venture into opening these new businesses. As a result there would be an increase in the income of workers, thereby boosting local retailing. Reducing or cutting taxes generally motivates citizens and gets the best out of businesses. Reduction can be done by reforming the corporate tax system to ensure reduction in the load that comes with income taxes. Policies to boost the formal sector. A boosted formal sector gives way to rising tax revenues that could in turn assist in unfastening supply-side bottlenecks, importantly in infrastructure and innovation and encourage the public to get involved more in social spending. Formal reforms include regulating public payment systems, enhancing efficiency, putting the local and central parts of government in order and ensuring efficiency in the management and governance of public enterprises. Policies to promote innovations. One of the key economic growth drivers are the innovation-promoting policies. As a key driver of long-term growth, innovation-related research and development are considered as one of the biggest economic assets. This is through academic institutions, especially universities who collaborate with industries to create businesses. A recommendation is made to promote and put more weight on innovation as one of the drivers of the economy as well as an important factor in economic recovery. There is need to put more emphasis on research and development as well as speed up collaborations for innovations. In the 1980 Bayh-Dole act universities were allowed ownership rights to innovation initiated by federal funding. This resulted in over 5,000 new startups and 260,000 employment opportunities. Fiscal policies. In regards to the banking sector, there is need for regulation of financial innovation in the sense that it should be able to prohibit the entry of unscrupulous and economically damaging fiscal products. The government should also put measures in place for the improvement of financial disclosure in such a way that there is reduction of firms holding assets and liabilities in off balance sheet accounts. The government should also engage in projects that have less public costs which ensure that a lot of consideration weighs on cost benefit analysis. Policies to curb the budget deficit. Of principal importance is curbing the budget deficit through reforming entitlement which is the major driving force of a nation. This can be done by spending cuts and increasing taxes on large companies and people who earn high amounts of income. An overhaul of social security would also trim down the budget deficit. Deficits impair economic growth by significantly cutting down national saving which then diminishes capital stock, amount of workmanship, and incomes generated from different households. Policies should be structured to protect the positive incentive effects on the supply of workmanship as well as capital while avoiding a deficit in financing. Despite the fact that governments have put budget proposals in place and have considered the fragile nature of the economy, their deficit financing becomes the most outstanding element in terms of their negative effects on the economy. This has caused a lag in economic growth and should be addressed. The best way to offset the extra costs incurred is to keep and maintain the basic structure of policies but on the other hand change the way in which they are financed. Policies for education and technology. In order to enhance productivity and support the formal sector, business environments have to be strengthened and there should be encouragement to introduce new technology. This can be enforced by introducing competition, pulling down barriers to trade in the international map and encouraging investments. However this can only be done in light of good corporate and public governance. The education sector should also be revamped to guarantee that the demographic dividend is not wasted. Education is one of the fundamental pillars of a country’s economy therefore access should be provided to all in order to ensure opportunities are fairly distributed to all. However, with improvement in education comes the need to improve its quality to ensure rising manpower is effectively harnessed. In most countries there have been recommendations to raise manpower in order to revive the levels of productivity. Education is therefore at the very centre of reduction of inequalities and creation of opportunities in the labor market. This sector has received numerous policies in its favor but it is still paramount that its efficiency be improved, especially that of public education. The end product of education reform should be to introduce and maintain more options and scope for students to be able to attain their full potential in relation to their aptitude and interests. Policies to rebuild infrastructure. Another important factor for economic growth is infrastructure. It is an important aspect in ensuring competition in the global world as well as a job creation tool. It is therefore important to invest highly in infrastructure networks and encourage the private sector to invest and participate in infrastructure development for a country’s economy to run smoothly. The government should ensure that there is accountability and efficacy in building of infrastructure. Fighting Corruption. In many countries, the culture of impunity has been one of the major issues that have contributed immensely to the great fall of an economy. There have been minimal improvements directed toward the policy of corruption. There were policy recommendations in the past intended to increase the punitive powers of the authorities that were in charge and there were indications in the past that these had a better chance of implementation. On the contrary, systemic changes were hardly acknowledged nor implemented fully. There have been minimal developments in this area except for some effort which was directed towards the transparency of the decision making process. It is therefore paramount that these issues of corruption are addressed fully. Climate Change policies. Recommendations have been made to resolve the stalemate that is climate change by putting up measures that would alleviate the crisis. These concerns were raised by Al Gore’s endeavors as well as the Stern report from Great Britain which served to bring in more economists to the climate change discussion. The concern that is climate change has been focused on the effects it may cause and the result of this to different regions of the world as well as groups of people. In addition to this uncertainty of what will happen and the complexity of climate change, a lot of discussions are now centering on whether or not the burdens that come as a result of climate change should be shared among the developed and non developed countries. Recommendations are made importantly to provide additional controls as well as some specific price incentives. It should be noted that these are not just mere increase in regulations but a commitment to the implementation of the same. These regulations should include carbon taxes and entire removal or reduction of current subsidies that are gagging many traditional energy producers. There may be need as well to consider subsidizing measures that project reduction of carbon costs. However, from history it’s clear that neither scientists nor economists have been able to fully ascertain which innovations can help alleviate this problem in an economical way. Investment policy. There is a need for reform in the investment policy with direct regard to immigrants. The existing policy does not cater for the introduction of capital investment entrants from other countries. This means the people who are not willing to run businesses themselves but who are able to financially make substancial investments to a foreign country. There should be policies that govern the way this should be done in order to bring in new capital that in turn will stimulate economic growth as well as domestic consumption. A country would be at a disadvantage if it does not put in place legislation to ensure that there is injection of new funds for investment in the country’s economy. Investments give birth to opening of more businesses, employment opportunities and in addition, the generation of revenue for a country’s economy. Public investment is paramount in the rate of economic growth since it provides the economy a demand stimulus as well as increasing its capacity for production. Investment of this kind is important in the sense that it plays an important role in allocation of resources to the poverty ridden people of a country. Public investment is crucial to a strategy that is pro-poor and pro-growth economic strategy since it provides demand management, redistribution and creation of capacity. Weeks and Roy (2004). This area therefore also requires policies that are sustainable and implementable. Privatization of state owned properties (SOEs). Another area which requires economic policy reform is privatization of state owned properties (SOEs) as well as other assets owned by the public, which include land and housing. Privatization of these assets has been a fundamental constituent of neoliberal reforms of the economy. This has been due to the general perception that public ownership of assets is not efficient and impedes allocation of resources, slows down innovation and distorts incentives. There should be fair distribution of resources through implementation of privatization policies that ensures access of properties for everyone. When public assets and wealth are privatized, their distribution is equalized. However privatization of the provision of public services such as energy, water and social services has most times led to hiked prices and less coverage for poverty ridden households. Kessler (2003). In a lot of cases privatization has boosted the economy and on the other hand fueled more corruption and increased rent seeking. Economists should therefore conduct their analyses well in advance regarding what reforms work for which economy and endeavor to ensure its implementation. Conclusion The government should prioritize economic development policies that work to revamp the economy and provide it with stability. These policies should focus and include strategies to ensure tax reduction, budget deficit curb, improvement in both the education sector as well as put in place measures to ensure the innovation and research sector is working. The government should also ensure that these policies and practices for inspections and enforcement adhere to and respect the rights of the people subject to the enforcement, and are created with these people in mind. They should also be designed to enable maximum net public benefits and avoid any additional weight on those policies that are subject to inspection. References Ahrend, R., C. Moeser and T. Monacelli (2011b), “How Institutions Shape the Distributive Impact of Macroeconomic Shocks: A DSGE Analysis”, OECD Economics Department Working Papers, No. 884, OECD Publishing. Chowdhury, Anis (2003). “Poverty Reduction and the ‘Stabilization Trap’ – The Role of Monetary Policy.” Draft thematic summary on monetary policy for the Asia-Pacific Programme on the Macroeconomics of Poverty Reduction. Kessler, Tim (2003). “Assessing the Risks in the Private Provision of Essential Services.” Discussion paper contributed by the Citizens’ Network on Essential Services for the G-24 Technical Group, Geneva, Switzerland, September 15-16. Romer, Christina D. and David H. Romer. (2009b). “Do Tax Cuts Starve the Beast? The Effect of Tax Changes on Government Spending.” Unpublished manuscript, University of California, Berkeley (May). Brookings Papers on Economic Activity, forthcoming. Weeks, John and Rathin Roy (2004). “Fiscal Policy for Pro-Poor, Investment-led Growth.” Draft thematic summary on fiscal policy for the Asia-Pacific Programme on the Macroeconomics of Poverty Reduction. McKinley, Terry (2004). “Macroeconomic Policy in Transition Economies.” Draft report prepared for the Initiative for Policy Dialogue, Columbia University, New York. Nixson, F. and B. Walters (2003). Privatization, Income Distribution and Poverty: Mongolian Experience. Sydney: Asia-Pacific Press. Palmintera, Diane. (2007) “Technology Transfer and Commercialization Partnerships,” Reston, VA: Innovation Associates. Retrieved from www.innovationassociates.us (02/03/2013) Read More