After decades of separation, economics and politics have once again become inseparable. A growing number of voters are rejecting the long-established consensus among economists that prosperity comes from broad free markets and free trade agreements.

Failure to garner political support for pro-growth policies will have profoundly adverse consequences for economic prospects. For decades, politics has been kind of a sideshow in terms of economics. This is no longer the case, weak politics will lead to weak economies. A basic economic principle is that any policy that is good for society as a whole can be made to be good for everyone in society, even if the policy creates winners and losers. All it takes is for the winners to be taxed a little to compensate for the losers, and everyone is better off. Economics takes an open-minded, scientific approach to examining broad real-world questions, such as why, as economies get richer, people often aren’t happier.

Politics is the usual answer, and the answer is usually the right one. But it’s too vague like saying that some countries are rich and some poor because of the economy. The distinction between economics and political economy can be illustrated by their different treatment of issues related to international trade. The economic analysis of tariff policies, for example, focuses on the impact of tariffs on the efficient use of scarce resources in a variety of different market environments, including perfect (or pure) competition (several small suppliers ), monopoly (one supplier), monopsony (one buyer) and oligopoly (few suppliers). Different analytical frameworks examine the direct effects of tariffs as well as the effects on economic choices in related markets. Such a methodology is generally mathematical and is based on the assumption that the economic behavior of an actor is rational and aims to maximize its profits. Although apparently a worthless exercise, such economic analysis often implicitly assumes that policies that maximize the benefits accruing to economic actors are also socially preferable.

Political economy is about how politics affects economics and economics affects politics. Governments attempt to revive the economy ahead of elections, so so-called political economic cycles create ups and downs in economic activity around elections. Likewise, economic conditions have a powerful impact on elections. Political economy is about how politics affects economics and economics affects politics. A basic political economic principle is that winners don’t like to be taxed to compensate for losers. And the battle is not about what is best for society, but rather about who will be the winners and losers.

Political economy has become an academic discipline in its own right in recent years. Many large institutions offer the study as part of their political science, economics, and/or sociology departments. Research by political economists is conducted to determine how public policy influences behavior, productivity, and trade. Much of their study helps them establish how money and power are distributed among people and different groups. They can do this by studying specific areas such as law, bureaucratic policy and legislative behavior, the intersection of government and business, and regulation. Political economists study how economic theories such as capitalism, socialism, and communism work in the real world.

At its core, any economic theory is a methodology that is adopted as a means of directing the distribution of a finite amount of resources in a way that is beneficial to the greatest number of individuals. In a broader sense, political economy was once the common term used for the field we now call economics. Adam Smith, John Stuart Mill and Jean-Jacques Rousseau all used the term to describe their theories. Short-term economics was superseded in the early 20th century by the development of more rigorous statistical methods for analyzing economic factors. The term political economy is still widely used to describe any government policy that has an economic impact. Political economy is a branch of social science that studies the relationship that is formed between the people of a nation and their government when public policy is enacted. It is therefore the result of the interaction between politics and economics and forms the basis of the discipline of the social sciences.

Unlike pure economic analysis of tariff policies, political economic analysis examines the social, political and economic pressures and interests that affect tariff policies and how these pressures influence the policy process, taking into account a range of priorities social issues, international negotiation environments, development strategies and philosophical perspectives. In particular, political economic analysis could take into account how tariffs may be used as a strategy to influence the national economic growth pattern (neo-mercantilism) or biases in the global system of international trade that may favor countries developed compared to developing countries (neo-mercantilism). -Marxist analysis). Although political economy lacks a rigorous scientific method and an objective analytical framework, its broad perspective allows for a deeper understanding of many aspects of tariff policy that are not purely economic in nature.

The study of domestic political economy is primarily concerned with the relative balance in a country’s economy between state and market forces. Much of this debate can be traced to the thinking of English political economist John Maynard Keynes (1883-1946), who argued in The General Theory of Employment, Interest, and Money (1935-1936) that there is an inverse relationship between unemployment and inflation and that governments should manipulate fiscal policy to ensure a balance between the two. The so-called Keynesian Revolution, which occurred at a time when governments were trying to mitigate the effects of the global Great Depression of the 1930s, contributed to the rise of the welfare state and an increase in poverty. size of government relative to the private sector. sector.

In some countries, notably the United States, the development of Keynesianism led to a gradual shift in the meaning of liberalism from a doctrine calling for a relatively passive state and an economy guided by the “invisible hand” of the market to idea that the state should actively intervene in the economy in order to generate growth and maintain employment levels. The relationship between political economy and the contemporary discipline of economics is particularly interesting, in part because both disciplines claim to be descended from the ideas of Smith, Hume, and John Stuart Mill. While political economy, which was rooted in moral philosophy, was from the beginning a very normative field of study, economics sought to become objective and worthless.

Indeed, under Marshall’s influence, economists strove to make their discipline akin to the 17th century physics of Sir Isaac Newton (1642-1727): formal, precise and elegant and the foundation for a more intellectual enterprise. wide. With the publication in 1947 of Foundations of Economic Analysis by Paul Samuelson, which brought complex mathematical tools to the study of economics, the bifurcation of political economy and economics was complete. Mainstream political economy had morphed into economic science, leaving its broader concerns far behind.

(To be continued)

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