Economic policy

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Under economic policy more broadly refers to economic policy measures that a reasonable level of economic growth , price stability , a high level of employment and external balance should reach and secure ( magic square ).

In contrast, economic policy in the narrower sense is understood to be economic policy measures that aim to keep economic fluctuations within limits and to achieve economic growth that is as uniform as possible.

Possible instruments of economic policy are fiscal policy , monetary policy and income policy .

Excess expenditure and income in the individual sectors

Arithmetic relationships between deficits (expenditure surpluses) and (income) surpluses among the sectors are evident from the sector balances and are determined within the national accounts .

Task of economic policy

Problems such as B. High unemployment can arise for different reasons. A distinction is therefore made between undesirable developments caused on the one hand by economic fluctuations and on the other hand by structural problems (e.g. structural unemployment, power-related (wage cost) inflation).

The objective of economic policy in the narrower sense is to avoid strong economic fluctuations and economic unemployment as far as possible. To this end, an attempt is made to keep deviations in the degree of utilization from the normal degree of utilization (recessions on the one hand, economic overheating on the other) to a minimum. An attempt is therefore made to avoid excessive demands on production potential (the risk of a sharp rise in prices and structural undesirable developments due to excessive growth rates) and underutilization of production potential (the risk of a decline in employment and a further deterioration in the situation due to pessimistic perspectives) through the timely use of economic policy means.

The goals of economic policy in the broader sense are to achieve and secure appropriate economic growth , price level stability , a high level of employment and an external balance ( magic square ). These goals are regulated in Germany in the Stability and Growth Act ( § 1 StabG of 1967). There may well be conflicting goals if z. For example, the state is trying with all its might to increase employment, because this in turn would have a negative impact on monetary stability.

Before policymakers can develop actionable measures, the causes for the development of business cycles must be defined.

Business cycle theories as a basis for business cycle policy

Business theory examines and describes the causes and effects of business activity and the business cycle. In 1937 Gottfried von Haberler , on behalf of the League of Nations at the time , created a system and an overview of the first business cycle theories. Gottfried von Haberler is considered a pioneer of business cycle theories. Since the creation of the above theories, advocates of these theories have considered different causes of business cycles and advanced other theories. The business cycle theories can be roughly divided as follows:

  • Pre-Keynesian business cycle theories
  • Further developments based on Keynes
  • Neoclassical business cycle theories

Economic risks

Every recession is associated with a decline in demand. With a flexible labor market, this also means lower real wages .

To balance interdependence.

There is therefore a great risk that the stagnating economy will enter a deflationary spiral . The Japanese crisis at the beginning of the 1990s is a prime example of this economic policy dilemma of a stagnating economy .

Types of economic policy

The economic policy can be classified as follows according to its effect:

  • Expansive economic policy: has a positive effect on economic growth
  • Contractive economic policy: has a negative effect on economic growth
  • Anti-cyclical economic policy: this should counteract a development
  • Procyclical economic policy: this solidifies an already existing development

Instruments of economic policy

Fiscal policy

→ Main article: Fiscal policy

In the event of a recession, fiscal policy can increase public spending (e.g. public investments) and / or lower public revenues (e.g. taxes) in order to strengthen purchasing power in the private sector. As a result, a negative budget balance of the public budgets is brought about in order to stimulate total demand ( deficit spending ) and to generate a budget surplus in an economic fluctuation in order to counteract an overuse of the production potential. This countercyclical development of the budget balance is due to the design of the German tax system, because tax revenue declines in the recession phase, while most government expenditure (e.g. unemployment benefits) increases in the recession. The public budget thus has an automatically stabilizing effect on the economy (automatic stabilization). The prerequisite for the stabilizing effect of the public budget is that enough tax funds have been set aside during the upswing so that they can be used for additional expenditure during the recession. The state then engages in fiscal policy when it uses fiscal policy instruments within the framework of economic policy.

Economic deficit

A cyclical deficit arises in public budgets even without an active fiscal policy due to the cyclical effects on tax revenues and the social system. On the one hand, due to cyclical tax shortfalls, as people consume less because of uncertainty about a possible bad economic future. But also through additional expenditure by state institutions such as the employment agency in the form of unemployment benefit 1 or unemployment benefit 2, since the number of unemployed rises in the downturn or recession phase.

Fiscal Policy Instruments

The state uses the following instruments to control economic policy:

  • Increase in government spending
    • Increase government investment
    • Subsidies
    • Increase in state social benefits (change the disposable income and thereby affect consumption)
  • Lowering taxes like
  • Creation of a more favorable working and production environment (e.g. more flexible collective agreements)

Instruments can be used differently depending on the economic policy goals being pursued.

According to the mode of action, fiscal policy measures can be classified as follows:

  • Expansive fiscal policy: instruments are used to promote growth, e.g. B. by increasing government spending, dissolving the business cycle adjustment reserves . If necessary, budget deficits must be accepted so that public spending increases and the economy is stimulated ( deficit spending ).
  • Contractive fiscal policy: Here instruments are used to dampen the economy, e.g. B. by lowering government spending and creating economic adjustment reserves (surplus saving).

Fiscal Policy Problems

  • If there are conflicting goals, it is impossible to achieve all goals at the same time. Thus, the state must set priorities between the goals.
  • Parliamentary hurdles limit the state's ability to act. Once granted, privileges are difficult to revoke.
  • Indirect influence on economic variables makes it difficult for the state to influence them directly. According to this, the state only has a direct influence on overall economic demand through government spending.
  • A delay in measures due to indirect influences means that certain measures will only have an effect in subsequent periods. If the economic development is reversed by then, government measures will have a counterproductive effect, as they then sometimes intensify undesirable developments.

The term “economic stimulus”, also known as “fiscal stimulus”, refers to the increased government spending that is specifically decided to combat the economic downturn. In the background is the idea that government spending should replace the loss of demand on the market in the short term. The output gap (the difference between the national product that could be produced with the available potential and what is actually produced due to the lagging demand) should be closed as far as possible.

The economic historian and government advisor Christina D. Romer draws the following economic policy lessons from the global economic crisis of 1929 and an evaluation of the economic policy of the New Deal : The stimulus must have macroeconomic weight and must not be prematurely suspended. The states and the municipalities must not be forced to rigid budget rules because of procyclical spending cuts. Monetary policy can also have a supportive effect when interest rates are extremely low by counteracting the formation of deflationary expectations.

Monetary policy

→ Main article: monetary policy

With its instruments, the latter cannot directly influence overall economic demand. As a result, however, monetary policy can indirectly influence the spending dispositions of private households and companies through changes in interest rates and money supply . Here, the strength of the relationship between the monetary and real areas of an economy is decisive for the effectiveness of a monetary policy oriented towards economic policy. The Keynesian Declaration emphasizes the liquidity component of monetary policy measures. Accordingly, an increase in bank liquidity leads to a reduction in interest rates and also in borrowing costs and thus influences real investments.

The monetary explanation, on the other hand, emphasizes the wealth components. I.e. Money increases release a long chain of substitution processes . As a result, the demand for securities and financial assets rises first, while their yields fall and the demand for money increases at the end of the chain. It should be noted that the real effects of monetary policy are only temporary and, in the long term, only the price level rises.

See also credit capping , as a rigid measure to dampen the economy if there is a tendency to overheat.

Income policy

→ Main article: Income policy

Neoclassical Monetarist Approach

Here the principle applies that persistent unemployment is always and everywhere due to an excessively high real wage level. This means that full employment leads to wage increases and leads to an increase in costs and thus to inflation over the development of production. Therefore, depending on the situation, wage rules that are neutral to the cost level (wage policy that is neutral to the cost level) or guidelines that conform to full employment (wage policy that conforms to full employment) are recommended, whereby income policy becomes an instrument of economic policy. Since the market mechanism also fulfills the goal of distributive justice, active redistribution efforts are rejected because the wage rules and recommendations only anticipate and accelerate the market development that is taking place anyway. It is not about solving the distribution conflict, but about convincing the other side (employees, trade unions) that they are giving up their autonomous distribution plans.

Keynesian approaches

Here, too, according to the Keynesian and post-Keynesian assumptions, it is assumed that traditional economic policy with the goals of price stability and full employment fails partly due to the distribution conflict between the groups. According to these economic models, income or wage policy not only serves to safeguard economic policy, but also has a redistributive character as long as there are unjustified inequalities.

Economic classification

Demand-oriented positions

Demand-oriented economic policy based on the Keynesianism founded by Keynes and countercyclical financial policy . According to Keynesianism, with pessimistic economic expectations, a market equilibrium is possible even with underemployment and, on the other hand, weak demand or a decline in demand leads to low sales expectations of companies, which in turn prevents (influences) investments.

In the case of demand-oriented economic policy, the state has the task of stimulating the economy in economic recessions by means of "economic stimuli", possibly also by borrowing from the state ( deficit spending ). To this end, taxes can be reduced, temporary investment incentives can be set for companies and / or state investments can be made in infrastructure projects. Not all types of expenditure produce demand quickly or to the same extent. In the case of a reduction in income tax or corporate taxes, the same amounts of money are not immediately spent on growth-promoting consumption or investments, but are saved or used to repay debt. Increases in the disposable income of low-income private households and infrastructure investments that can be implemented quickly are faster and have a greater impact on demand ( multiplier effect ). A demand-oriented economic policy is supplemented by an anti-cyclical monetary policy. In a crisis, a policy of low interest rates (policy of cheap money) should facilitate investments and the financing of government budget deficits.

The objection of the threat of national debt is countered by pointing out that the investments in infrastructure financed by borrowing are also important as the basis for the growing prosperity of an economy. If one relates the borrowing to the size of the gross national product, then the government measures simultaneously change the size of the denominator of this fraction. "Loan financing does not mean that the balance of government spending and revenue deteriorates by the same amount."

Possible actions

  1. Tax reduction or increase in order to influence the demand for consumer goods
  2. Variation of the interest rate to influence consumer and investment demand
  3. Compensation of private demand with government demand
  4. Government investment

Evaluation and criticism

Criticisms of demand-oriented economic policy / Keynesian economic policy mentioned from a neoclassical perspective are:

  • An expansive fiscal policy causes increasing national debt , since democracies rarely comply with Keynesian demand to pay off debts taken on during the crisis during an economically good phase.
  • The so-called crowding-out effect would also originate from this development , according to which expansionary new borrowing by the state would dry up the credit markets, leaving too little credit available for the private sector and private consumption, which would be particularly important in a recession.
  • A one-sided orientation of economic policy on the demand side neglects the supply side, which leads to a reduction in investment activity and consequently to a slowdown in growth dynamics
  • In reality, the multiplier effect of government employment programs would be much smaller than assumed in Keynesian models. Often there are only short-term “flash in the pan”, while long-term negative effects on the development of production and employment can be recorded.
  • State full employment policy exacerbates distribution struggles and inflation, which slows down the growth dynamic
  • In Keynesian models, the long-term consequences of inflation would be played down
  • The "positive effects of cleaning crises" would be suspended - with long-term negative effects on growth and employment.
  • Short-term orientation: The sum of short-term “correct” measures could lead to problems in the medium and long term . There would be a tendency towards inflation as a result of an ever again expansive monetary policy, which in the long term expanded the money supply too much
  • Countercyclical economic policy can be associated with long time lags. Then it no longer has an anti-cyclical effect, but a procyclical one.
  • A failure of the countercyclical policy could lead to increasing state interventionism , which would undermine the market economy .

On January 22nd, 2009, the Scientific Service of the German Bundestag published a paper on the global control system operated in Germany from 1967 to 1982, i.e. an attempt to fine-tune economic development to achieve real economic growth of 4%, an unemployment rate of less than 0.8% and an inflation rate of less than 1% declared a failure overall.

A working paper by Daniel Leigh and Sven Jari Stehn comes to the conclusion that monetary policy could generally be used countercyclically in the sense of a successful economic policy , while the picture for fiscal policy is mixed. While the effect of fiscal stimulus programs in continental European countries and Japan mostly came late and consequently had a procyclical effect, the effect of fiscal policy in Anglo-Saxon countries came about in good time, so that it had an anti-cyclical effect here.

Offer-oriented positions

The monetarist - neoclassical oriented supply policy is based on the stability of the private sector. Aside from exogenous shocks , economic fluctuations are essentially based on imperfections in the market . In order to avoid economic fluctuations, it is important to remove the imperfections in the market. Active economic policy (discretionary monetary policy and fiscal policy ) is generally considered harmful. Monetarism calls for a rule-based monetary policy. By adjusting the money supply to the production potential , macroeconomic imbalances are to be avoided.

Supply- oriented economic policy is based on Say's theory , according to which every supply creates a demand for itself. By strengthening performance incentives and reducing performance barriers, the investment and production climate is to be improved in the long term. Continuous removal of supply barriers (stabilization policy).

Possible actions

The task of supply-oriented economic policy is to remove obstacles to private-sector activities, especially when it comes to investments, in order to "revitalize" the economy.

  • Monetary stability through potential-oriented monetary policy
  • Productivity-oriented wage policy of the collective bargaining partners
  • Market policy (prevention of anti-competitive behavior, dismantling of an "excessive" social policy)
  • Deregulation z. B. labor law regulations
  • Creation of a favorable framework for business investments
  • Lower taxes and duties for companies and households.
  • The state largely refrains from intervening in the markets.
  • In principle, the aim is to pursue a budgetary policy that is neutral to the economy, although economic downturns should be mitigated by automatic stabilizers and semi-automatic stabilizers. Without economic policy action, automatic stabilizers have a countercyclical effect on the business cycle (e.g. unemployment insurance, social assistance, progressive income tax). In severe economic crises, discretionary or "semi-automatic" stabilizers should also be used. In some cases, what is meant is (“discretionary”) post-Keynesian (countercyclical) fiscal policy.

The cyclical-neutral budget is a budget concept of the Council of Experts to assess the overall economic development. For the first time in 1967/68 the Council of Economic Experts developed and applied the cyclically neutral budget in its annual report. In this concept, the budget volume is cyclically neutral if it does not directly cause the utilization of potential output to deviate from what is considered normal in the medium term. The rules of the cyclical budget are:

  • Public expenditures are cyclically neutral if they increase or decrease proportionally to the production potential in relation to a base year.
  • The base year is the period in which the public expenditure has an allocative and distributive target content according to the quota.
  • Tax revenues that have the same percentage increase as the national income.
  • When the public debt is growing at the same rate as that of the potential output.

The concept of the cyclical budget is aimed at the cyclical impulse from public budgets. The actual expansionary or contractionary impulses determined on the basis of the economically neutral budget are compared with those that would have been necessary if a demand deficit or a demand surplus were to be compensated for a given deviation from the equilibrium path of budgetary policy. The quantitative effects of the respective budget plans are shown here.

Evaluation and criticism

Among other things, the following is criticized:

  • A "redistribution from bottom to top". Many parts of the population perceive many measures to improve the framework conditions as socio-politically “unjust” and detrimental to distribution policy.
  • Supply-oriented economic policy achieves long-term success at best, but politicians often need short-term success.
  • The (undesirable) effects of certain supply policy measures on demand effects (and thus on growth and employment) would (at least) suggest that a radical supply policy should be abandoned (e.g. no radical austerity policy and no forced wage restraint).
  • Doubtfulness of the Laffer effect : the abrupt tax cuts in the United States under President Ronald Reagan caused extreme budget deficits and the resulting extreme deficits in the current account .
  • When capacity utilization is low, companies will only make rationalization investments, which will further reduce employment.

Historical and current examples

  • The New Deal from 1933 to 1938 in the United States
  • Job creation, infrastructure and armament projects from 1933 to 1936 in the German Reich
  • The construction of the Interstate Highways under US President Dwight D. Eisenhower in the 1950s
  • The global control in Germany since 1967 until the second half of the 1970s
  • The potential-oriented stabilization policy in Germany in the 1980s and 1990s

In the course of the financial crisis from 2007 and the problems resulting from it, economic stimulus programs:

literature

  • Walter Assenmacher: Business cycle theory . 8th edition. Oldenbourg, 1998, ISBN 3-486-23998-8
  • Werner Glastetter : Economic Policy: Goals, Instruments, Alternative Strategies . Bund Verlag, 1987, ISBN 3-7663-3048-9
  • Michael Grömling: Fiscal Policy Controversial: Economic Policy Options for Germany. In: DIV , 2005, No. 18, ISBN 3-602-24115-7
  • Jürgen Heubes: The economy and growth . Vahlen, 1991. ISBN 3-8006-1485-5
  • Michael Holstein: Modern Business Theory: Real Shocks, Multiple Equilibria, and the Role of Monetary Policy. Metropolis, 1998, ISBN 3-89518-197-8
  • Alfred Maußner: Business cycle theory . Springer, 1994, ISBN 3-540-57790-4
  • Jürgen Pätzold: Stabilization Policy: Basics of Demand- and Supply-Oriented Economic Policy. 2008, ISBN 978-3-8006-3492-7
  • Ulrich Teichmann: Outline of the economic policy: growth in stability as the goal . 5th edition. Vahlen, 1997, ISBN 3-8006-2191-6
  • Gunther Tichy: Economic policy: quantitative stabilization policy in the event of uncertainty . 4th edition. Springer, 1999, ISBN 3-540-65910-2
  • Helmut Wagner: Stability Policy: Theoretical Foundations and Institutional Alternatives. 2004, ISBN 3-486-20031-3
  • Maximilian Walter: Stabilization Policy . 2004, ISBN 3-89673-199-8

Web links

Individual evidence

  1. ↑ a b c economic policy . In: Gabler Wirtschaftslexikon
  2. ↑ Ulrich van Suntum : The invisible hand . ISBN 978-3-540-25235-1 , p. 122
  3. ^ Werner Vomfelde: Introduction to the economic policy . Duncker & Humblot, 1977, ISBN 3-428-03990-4 , p. 53 ff
  4. ^ Ewald Nowotny : Reasons and Limits of Public Debt. In: Economics in theory and practice. Berlin / Heidelberg 2002, p. 261, books.google.at (see also table Overview 3: Sectoral financial balances on p. 262):
    “The most important approach is the macroeconomic financial account , which shows the income and expenditure surpluses (financial balances) of the individual sectors recorded in the national economy. The rule here is that the sum of the financial balances of the individual sectors (difference between income and expenditure) must be zero . "
  5. ↑ Walter Assenmacher: Business cycle theory . 8th edition. Oldenbourg Verlag, Munich / Vienna, ISBN 3-486-23998-8
  6. ↑ Alfred Maußner: Business cycle theory . Springer Verlag, Berlin / Heidelberg 1994, ISBN 3-540-57790-4 . P. 25 ff.
  7. ↑ Deflation on the horizon . In: Böckler Impuls , 03/2009
  8. ↑ a b c d e Gunther Tichy: Economic policy, quantitative stabilization policy in the event of uncertainties . 4th edition. Springer Verlag, Berlin / Heidelberg 1999, ISBN 3-540-65910-2 , p. 79 ff.
  9. ^ A b Michael Grömling: Fiscal Policy Controversial: Economic Policy Options for Germany . No. 18. DIV Verlag, Cologne, ISBN 3-602-24115-7 , p. 9 ff.
  10. ^ DW Elmendorf, J. Furman: If, when, how: A primer on fiscal stimulus . ( Memento of October 10, 2011 in the Internet Archive ) (PDF) The Brookings Institution, Washington DC 2008.
  11. ↑ Christina D. Romer: Lessons from the Great Depression for Economic Recovery in 2009 . ( Memento of October 9, 2011 in the Internet Archive ) (PDF) Lecture Brookings Institution, Washington, DC, March 9, 2009
  12. ↑ Lawrence Mishel: Tax cut approach has already been tried and failed as stimulus
  13. ^ J. Bradford DeLong: Are Recovery Programs Pointless? Project Syndicate, 2010.
  14. ^ Synopsis of stabilization policy concepts.
  15. ^ A b c Jürgen Pätzold: Stabilization policy .
  16. ^ A b Claus-Martin Gaul: Economic stimulus programs in the history of the Federal Republic of Germany. Classification and evaluation of global control from 1967 to 1982 . ( Memento of March 6, 2009 in the Internet Archive ) (PDF; 247 kB) German Bundestag, Scientific Service, 2008
  17. ^ Daniel Leigh, Sven Jari Stehn: Fiscal and Monetary Policy During Downturns: Evidence from the G7 . (PDF; 887 kB) IMF Working Paper WP / 09/50
  18. ↑ Wolfgang Cezanne: General Economics . Oldenbourg, 2005, ISBN 978-3-486-57770-9 , pp. 490-494
  19. ↑ Ulrich van Suntum: The invisible hand , p. 124
  20. ↑ Hans-Ulrich Thamer: Economy and society under the swastika .. In: National Socialism II, information on political education , issue 266, 2004