01. Approaches
02. Methods
03. Target analysis
04.
Means analysis
05.
Promoter analysis
06. Political economy
07. Welfare economy
08. Order analysis
09. Order conception
10. Order dynamics
Outline:
0th Preliminary notes
1th The question about the normative
content of political aims
2nd The question about the topicality of
political aims
3rd The question about the reasons of
political aims
4th The question about conflicts of aims
5th The question about the realistic of
aims
0th Preliminary notes
Within the scope of the economic policy
three fundamental questions are under discussion again and again. Firstly: What
do we want to achieve? This is the question about the concrete aims of the
economic policy. Secondly: How do we want to accomplish these aims? This is the
question about the means (instruments) of the economic policy. Thirdly: by whom
these tasks are to be solved; this is the question about the actors of the
economic policy.
First it is necessary to clarify when we
speak of aims and when of means. One might initially specify that one always
wants to speak of aims when the tasks under discussion are pursued for its own sake,
when thus the tasks own an intrinsic value. By contrast one would speak of
means - according to this classification - when to be approached tasks possess
no intrinsic value, and would thus be carried out in order to achieve superior
aims.
However, in practice such a division meets
difficulties. De facto namely almost all political tasks have a certain
intrinsic value. Furthermore, it is necessary to consider that there is a
hierarchy of aims, that certain tasks which are declared as aim in turn may represent
only a sub-aim to achieve other, superior aims and in this sense can also be
considered as means of achieving these superior aims.
One could indeed help oneself out of this
difficulty, in that one views all the political tasks as aims, provided that
the intrinsic value outweighs and the means character is of lesser importance.
Conversely, one would always speak of means, if the intrinsic value of this
measure would be of less importance, and this measure is striven primarily to
achieve other superordinated aims.
But such a procedure also encounters
difficulties, since such an approach would come into conflict with the current
practice. For example, consider the task of fight against inflation. In
practice, here it is almost always spoken of an aim. Nevertheless, this aim is
at best recognized as having a low intrinsic value. We are generally not
striving for a monetary stability for its own sake, but because we assume that
an inflation emerges negative effects on allocation, distribution and possibly
also on economic growth. Therefore obviously the means character of this aim
has priority. Why then in this context nevertheless one always speaks of an
economic policy aim and not of a means of economic policy?
This brings us to another possible
classification. The reason why we do not consider the pursuit of monetary
stability as a means but as an aim is namely because the policy - neither the
central bank nor the state - has no opportunity to influence the value of money
directly, that rather other measures - for example, an increase in the key
interest rate of the central bank - are necessary in order to achieve in this
indirect way, thus through the use of a further means, monetary stability.
The monetary value is defined as the
reciprocal of the sum of the price changes. The monetary value is stable, so
does not change when the price level remains constant. But if prices rise on
average, the value of money falls. The price level results here from the average
of the individual prices and these results, at least in a market economy, from
the play of supply and demand. They therefore also cannot be directly changed
by the policy.
Based on these considerations results a
new classification of political activities in aims and means. We speak only of
a political means, if the politicians can directly affect the to be changed
variables, while whenever the to be influenced variables can only be influenced
indirectly by the use of other instruments; it should be spoken of aims.
Now, wherein lays the task of general
economic policy teaching? It wants to grant the politicians a decision aid in
the question, which aims and means are to be chosen and to which agents these
tasks are to be assigned. It is necessary for two questions to be clarified in
this context.
Question no. 1: Is a decision aid on the
part of science necessary and is it possible, further why science has to
confine itself to an aid for decision, why can science, due to its larger store
of knowledge, not recommend the politicians what is to be done?
The question no. 2 refers to what this
decision aid of science consists of in detail.
Let us turn to the first question. Max
Weber had - as shown in the previous chapter - postulated the principle of
freedom from value judgment according to which the scientist in his capacity as
a scientist does not have any possibility to prove or disprove ultimate values
scientifically. The scientist would have therefore to abstain from the
political evaluation of the core values if he imparts advice to the politicians
as a scientist.
If one proceeds on this generally accepted
principle, then the following conclusion is obvious: The question of the aims
to be striven is solely a case for the politicians, the scientist could not (at
least in his capacity as a scientist) contribute to this question.
On the other hand the question is, by
which means a given aim is to be realized, a problem that could be resolved
solely and completely by the science, politicians could not make any contribution
to this issue, it would be best if the politicians would follow the advice of
scientists.
These conclusions would be, however,
clearly wrong. Neither it is true that the scientist can make no contribution
at all to the question of the desired aims, nor it is true that a scientist is
able to decide the question of the desired choice of means conclusively and
completely at predetermined aims.
In the further sections about the aim analysis
we will show in detail that the scientist may very well make a real
contribution to the aim finding with regard to several issues. Here at this
point it is merely to be shown an example in which then, among others, the
contribution of the scientist to the aim finding may consist of.
We have already discussed above that in
the real world we have to proceed on the assumption that in general there is a
variety of aims, which are mostly in a hierarchical relationship to each other.
There are ultimate core values and there are other aims that can be derived
from these core values. The ultimate core values are usually laid down in a
constitution and therefore are no more, or only in a few cases, up for
discussion in practical politics.
The majority of the aims for which
struggle the politicians are sub aims, which can be derived from the ultimate
core values. Sub aims have always - as already indicated - also a means
character. Just if one considers that the scientist may very well contribute to
the question by which means a specific aim is to be achieved, the scientist can
- without exceeding his limits - also help to clarify the extent to which
concretely pursued aims support or hinder superordinated
core values.
For what reasons, however, the scientist
on the other hand is not able to decide conclusively and alone the question of
what means are to be used for predetermined aims? The reason is that in practice
almost all political activities, including the use of means, are adjudged a
positive or negative intrinsic value.
We take the example of the national debt.
The scientist may still be able so much to prove that a deficit in the state
budget under certain conditions allows for a reduction in unemployment and thus
constitutes an appropriate means to combat unemployment. We always have to
expect that politicians and citizens may reject an indebtedness of the state as
such, thus grant a negative intrinsic value to a deficit of the state budget
and for these reasons speak out against this specific measure. However, the
scientist cannot take a final decision about the validity of such a negative or
positive intrinsic value. Here applies the by Max Weber formulated postulate of
freedom from value judgment.
Now we get to the question no. 2: Wherein
lies the decision aid of a scientist to solve problems of economic policy? The
scientist can provide political decision aid by applying economic theory to the
practical problems of economic policy. Let us realize this relationship by an
example.
Let us take again the example of
employment policy. Politicians are faced with the fact that - for whatever
reason - employment declines and thereby unemployment arises and this to an
extent which does not appear politically acceptable. A need for political action
arises.
Politicians pursue the aim to increase the
level of employment and thereby to reduce unemployment. As a means for
increasing employment a Keynesian employment policy, namely an increase in the
deficit of the state budget, is up for discussion. The difficulty of such a
policy, that is the question of whether a Keynesian policy is really always
successful, we want to disregard here consciously.
The scientist is asked now if this means
appears suitable to increase the level of employment. The scientist can answer
this question by drawing on the theory of employment, where we want to
insinuate that the scientist acknowledges the employment theory developed by
Keynes as a relevant and accepted theory.
This employment theory has - like any
other theory - certain problem sizes, which are necessary to be explained; in
our case the overall economic volume of employment shall be explained. Furthermore,
the Keynesian employment theory leads their problem size back to other
economically relevant data sizes.
In case of the employment theory developed
by Keynes, the employment is seen in the immediate dependence of the domestic
production. Whereupon the volume of domestic production is on his part
determined by the effective demand. Therefore on one hand it is determined by
the consumer and investment demand. And on the other hand it depends on the
level of the deficit-financed government expenditures as well as on the current
account surplus.
The employment theory then shows how a
change in e.g. the amount of the state budget deficit affects the domestic
product and indirectly the employment. So the theory could e.g. come to the conclusion
that an increase in the deficit of the state budget by € 1 billion would lead
to an increase in the domestic product of € 3 billion and that this production
increase would have a more employment of 100,000 workers as a consequence. (The
quantitative examples are, of course, arbitrarily selected here)
Now what is a problem size for economic
theory is an aim size for economic policy. The employment theory wants to
explain the volume of employment; the politician wants to pursue the aim of increasing
the volume of employment. At the same time applies, that the deficit in the
state budget applies to employment theory as one of the possible determinants
of employment, while in the politics this budget deficit is seen as a means of
employment policy. One can therefore say that the application of economic
theory on the economic policy lies in a socio-technical reformulation of
economic theory. Causes or determinants become means, problem variables become
aim values.
Now let us turn to the question about what
the economist can contribute to aim finding in economic policy. Here we want to
differentiate five criteria.
First, it has to be stated that
politicians are often striving to express their aim formulations very vague and
indeterminate. For the control by the voters, which a politician should be
exposed to in a democracy, it is though essential that the aims are clearly
formulated and have a concrete content. The task of science in this case may be
that it checks the normative content of the individual aims (1st question about
the normative content of aims).
As second, it has been assumed that aims are
formulated by the politicians particularly to eliminate specific
problems-situations or at least to reduce them. Here, the aims striven by the
politicians can be topical in a quite varying degree. We take the case that
politicians hold out the prospect that also workers should be involved in the
acquisition of shares, but it is unclear to what extent the workers are already
in possession of shares previously. It is necessary for science to clarify, in
the sense of a situation analysis, to which extent the aims, put forward by
politicians, have already been realized and therefore how urgent it is to
implement measures to achieve these aims (2nd question about the topicality of
aims).
Thirdly, it is to be noted that
politicians are generally striving to justify the pursuit of certain aims and
to defend them. Therefore they generally rely on factual connections, thus
theories that can be right or wrong, and whose accuracy often cannot be checked
directly by the individual voter. Here it is the task of science to clarify to
what extent these factual connections are confirmed in the scope of scientific
and particularly empirical research, or are still controversial in scientific
circles. (3rd question about the aim reason).
Fourthly, we must assume that politicians
strive for a variety of aims simultaneously. These aims can be in a very
different relationship to one another, they can mutual presuppose or even
exclude each other. Whether each aim complements the other or whether a
conflict of aims exists, this question can only be answered in the context of a
scientific analysis (4th question of possible conflicts of aims).
Fifth, one could also see a scientific
contribution to the aim finding in checking if the aims striven for by the
politicians are realizable at all, or whether the aims have a utopian
character. This question also can basically be clarified definitely by the
scientists, although here it has to be distinguished whether an aim must be
classified generally as always utopian according to today's knowledge or if
only under the present conditions it must be expected that this aim can not be
realized at the moment, but that it can be very well expected in the future,
that this aim can be realized later.
Let us take for example the aim to liberate
an employee from any uncertainties. Here we must recognize faultlessly that
this aim can never be achieved. That this aim has to be clearly classified as
utopian, because we can never have the knowledge, due to permanent changes in
the data of economic activity, that we would need to liberate each worker from
all uncertainty.
But even if an aim has to be regarded as
utopian in this sense, it may well be justified to strive to approach this aim
as close as possible, even if one has to realize that this aim can never be
achieved a hundred per cent. In most cases we can assume in fact that together
with the achievement the expected benefit increase can be partly achieved even
when we approach the aim without ever achieving this aim completely.
Take as a further aim the elimination of
customs duties of any kind. Here it is about an aim that in principle can
certainly be realized and had been realized almost a hundred per cent
repeatedly in the past, at least between single states. Thus, for example, one
can certainly say that since the establishment of the European Community all
the customs duties towards other European countries were abolished in
principle.
Let us take, however, the time immediately
after the end of World War II, then it would have been politically totally
utopian to immediately abolish the customs duties within Europe and to create a
European Free Trade Association. A scientist may still be so very convinced of
the benefits of free trade, but he has to admit in such a situation that at the
moment this aim cannot be realized at all, due to circumstances that cannot be
changed right now.
1 The question about the normative content of
political aims
Let us now turn somewhat more detailed to
the 1st criterion, the question about the normative character of a political
aim. We can assume that there are a lot of possible action alternatives with regard
to the issues discussed in the context of politics. The methodology has now
indicated that it is the task of an empirical scientific theory to exclude,
among the thinkable possible approaches, those which are in fact impossible.
If by a theory none of the thinkable
possible solutions are excluded, then all solutions are considered possible
and, moreover, may also be considered as equally probable, thus one speaks of
an empty formula, of a statement formulated tautologically. A theory, which
confines itself to tautologically correct statements, has no semantic content
at all. On the other hand if a theory would succeed to exclude among the
thinkable possible solutions all as factually not possible except one, then it
would have the highest conceivable validity.
We can illustrate this relationship on the
basis of the by Pareto established theory of choice. We assume that the welfare
of a society depends on how much is produced of a good 1 and another good 2,
and we will take the amounts of these two produced goods down on the coordinate
axes. Now any combination of these two goods is conceivable, so every point in
this chart.
In this chart we now draw a transformation
curve, indicating which goods combinations can be realized at all with a given
stock of resources. In this way the plurality of the thinkable possible
solutions is confined to a few factual possible alternatives. Only the combinations
located on or below the transformation curve are factually possible.
The task of norms we can now see in
creating a hierarchy of desirability of these alternatives under the factually possible
solutions and to determine which solutions are most preferred, what solutions
may occupy a same rank and what other solutions are finally considered
undesirable. An aim formulation in which no factually possible alternatives are
excluded and all factually possible solutions are to be considered as
desirable, would then be regarded as normative empty formula, the normative
content of such an aim would be zero.
Now we have already pointed out that
politicians tend to formulate their aims as vague as possible, thus with a
conceivable low normative content. This is the fact because the future
operational freedom of the politician is the lower, the more the politician has
committed himself in the past and therefore the greater is the normative content
of an aim setting.
There are now several reasons why before
the election a politician is striving to leave open many possibilities for
action and to be preferably noncommittal. Before an election the politician
faces the compulsion to win over as many voters as possible, to score as well
as possible and to win the elections. Now the more concrete the aims are, which
politicians hold out in prospect, the more it must be expected that individual
voters discover that they are disadvantaged and therefore decide in favor of
another candidate.
If the politician, however, does not
commit himself, there is the chance that many voters, who have different ideas
about the desired political solutions, mistakenly interpret all these promises
in a way that they will benefit from these activities, although at a concretization
would become clear very quickly that a part of the voters would come out with
nothing, or would even be disadvantaged. We think e.g. about that before the
election the politicians promise to abolish unjustified subsidies. Of course,
each voter assumes that the subsidies, which he himself receives, are justified
and that he therefore is not among the losers of this decision.
Precisely because in this case a part of
the electors is deceived and the election decision is unfavorable for them,
this approach is generally politically highly undesirable. The control of
politicians that should be given by the elections, in a democracy is undermined
here. Here it is the task of the scientist to disclose how little the politicians
have actually held out in prospect at empty formulaic promises and therewith
contribute that voters can make an election decision which is more in line with
their own interests.
Political decisions necessitate
compromises. Now compromises are mostly unpopular, since they require that the
individual subgroups are making concessions of their individual aims. As a
cheap but not satisfying solution offers itself that all serious conflict areas
between the contending parties are excluded, and that this way one takes refuge
to high-sounding, but largely meaningless formulations and in reality only
pretends a true compromise.
However, it must be noted that striving
for the highest possible scope of action may also have other reasons. The
necessity for a certain scope of action increases namely in the extent to which
a society developed further. The more data changes have occurred since the last
election, the more the possibility has to be expected that the aims expressed
before the election must be adapted to the changed situation. Without a certain
scope a reasonable political action would no longer be possible. So it might be
necessary to adjust upwards or downwards promised assistance in the case of
inundations, due to the short term changed situation.
The Parliament will therefore attempt to
pass the laws in such a way that the implementing authorities have a scope of
action and are able to correspond to the data changes that occurred in the meantime.
This scope of action is especially necessary where the law - e.g. a
constitutional amendment - shall be passed for a very long time and therefore
many changes in the circumstances are to be expected.
Furthermore, scope of action may be
necessary anywhere where political decisions are increasingly entrusted to the
central regional authorities. A political decision, taken on the community
level, may still respond to the particularities of this community. The more central,
though, the political level is, the more must be assumed that in the individual
sub-regions, for which the law applies, there are different initial situations,
such that already for reasons of fairness some scope of action for the
implementing authorities should be allowed to correspond to the different
initial conditions of the individual sub-regions.
Now one may object that precisely the
recently mentioned examples indicate that a high normative content of the
policy aims can not be desired at all. This may be true. Nevertheless, there
remains a risk that the politicians take these relationships as an occasion to
choose empty formulaic formulations even there, where a large scope of action
is actually undesirable.
Now let us try to apply these theoretical
considerations to a concrete example. Almost all parties promise in their party
programs to advocate for a more just income and wealth distribution. Of course,
it can be assumed that each party pleads for a fair distribution of income; no
party will support unjust solutions.
However, it is important that the ideas
about what can be described as just, are very different. Often any impairment
of the own interests is perceived as unjust and the struggle for justice is
often not much more than a struggle to enforce the own interests.
In contrast, can only be spoken seriously
of a better concept of justice, if at least an attempt is made to mediate
between the different interests, to develop objective criteria under which
conditions at a conflict between the various groups the interest of the
individual has to come down in favor of another one.
Here it has to be clarified that the
demand for justice without any further specification contains only a very low
determination and that this is a prime example of an empty formulaic aim formulation.
What specific income distribution is namely classified as just, on this
question differ the Opinions.
Friedrich von Hayek has therefore even
opposed any scientific debate about justice; the word 'justice' would be a
weasel word in the sense that everyone would understand something different
under this term.
In the skepticism towards the concept of
justice no one has to go that far, with regard to the aim of justice it is
certainly possible to find objective criteria for reconciliation of interests.
So there shall be a broad agreement about that the distribution of income
should be based on achievement and demand. Who achieves more, should also draw
a higher income. At the same time, however, should also be taken into account
during income distribution that in the context of parenting and the social
risks are different levels of demand between individuals, wherein these
differences in demand were not caused by the behavior of those affected.
Differences between the parties and
interest groups exist, however, in what is meant in detail under achievement,
in which weighting achievement and demand should be considered and the extent
to which a more of justice should be enforced, even at the cost of other aims,
particularly the aim of freedom.
Liberal politicians are characterized in
that they measure the achievement by the prices of goods that are made on a
free-functioning competitive market, therefore on the contribution of the
individual to the domestic product. Direct interventions in the market are
generally rejected as non-compliant to the market because they invalidate the
allocation mechanism of the market. Liberals try to realize an equitable
distribution mainly the way that they are trying to prevent monopolistic market
structures through regulatory measures, and strive to reduce start inequities.
In contrast, socialist politicians
understand under achievement a size more aligned on work suffering. They
emphasize to a greater extent than the Liberals the need to complement the
achievement principle by demand items, and try to enforce corrections to the
income distribution even if this is connected to a limitation of market
freedom.
The difference between liberals and
socialists in the issue of fair distribution of income can be explained quite
well on the basis of the by John Rawls formulated Maximin – principle.
Socialists measure the degree of justice thereafter by the income leveling.
Every reduction of income differentiation then represents a more of justice. According
to the Maximin principle, however justice has to be measured by whether it is
possible to increase the income of the lowest income classes absolutely and in
reality.
If it is possible, to increase on policy
measures the income of the lowest income classes absolutely and in reality,
these measures will lead to more justice even then, if by this way the income
of the wealthier population increases or even more increases than the income of
the poor, when thus in other words, a further differentiation of the income
enters. A Liberal is not so very interested in the question whether the
distance of the incomes is reduced, but rather whether the absolute income of
the poorer could be lifted.
2 The question about the topicality of political aims
A second contribution of economic policy
teaching for aim finding is to review the question of how far then concrete
aims of the politicians can be described as topical. How far the guiding
principles pursued by politicians have already been realized? To what extent
political activities are necessary to bring about the desired aim states?
Within the scope of the topicality
analysis it is always about aims in terms of desired changes of state. The
contribution of science on this issue is to clarify the actual conditions in a
situation analysis.
A first problem in this context consists
in the prejudice that often exists in the public that therefore the assumptions
in the public do not correspond to the actual conditions. It meets e.g.
widespread opinion that almost all citizens of FRG derive an income that is
above the subsistence level. In reality, however, far more than one million
citizens are eligible for social assistance. If one regards the current social
welfare payment rate as a benchmark that indicates how much income each citizen
should dispose at least, then this means that more than one million citizens
receive an income below the subsistence level. Task of science is in this
context to overcome these prejudices by empirical studies.
A second problem arises from the fact that
a deficient data base and insufficient statistics paint a false picture of
reality. So show e.g. the official statistics a higher difference between
standard wages and actual earnings than it corresponds to reality. The reason
for this is the fact that it is not possible to capture statistically the
multitude of collectively agreed special services; they are therefore not recorded
in the official wage statistics, but in the statistics of the actual earnings.
The consequence of this is that the scope of wage supplements above the agreed
rate is shown as to high in official statistics. It is the task of science to
draw attention to these deficiencies.
Thirdly, even the existing, in and of it
quite correct statistics are often misinterpreted. This would be e.g. the case
if one would evaluate the share of employees in the savings books as an
indication to what extent the employees are participating in the earning assets
at all. It is known that employees invest their savings primarily in savings books,
while the self-employed persons view the accounts saving at best as a temporary
investment and deposit their savings either in their own enterprises or by
buying security papers. So in this case it would be wrong, if one would
conclude from the in itself quite right parts of the statistics of assets and
liabilities directly on the total range.
Fourthly, it should be adverted that
statistics can only ever orient on facts, but that sometimes hidden evaluations
of facts are issued as objectively given situation analysis. Let us take the exploitation theory of the
Marxists. At first this thesis has been understood thus a large proportion of
workers have an income that does not even correspond to the subsistence level.
If one now specifically defines how high a person's income has to be in order
that the person has a subsistence level, can check empirically whether this
hypothesis corresponds to reality.
The evidence that the average income of
employees has risen sharply in the last century induced the Marxists, though,
by no means to drop this thesis as empirically disproved, but they
reinterpreted the exploitation thesis, in the sense that the share of employees
in the domestic product has decreased relatively; and when even this thesis was
empirically not confirmable, the Marxists spoke of a potential exploitation
which de facto would not appear in the highly developed nations, as these
countries were exploiting their colonies, so that the exploitation was moved to
a different population.
In our previous consideration the
situation analysis always referred to the currently available facts. In
reality, however, a situation analysis has to consider as well the situation
expected for the future. Namely, we have to assume that there always elapses a
certain time until today initiated measures are showing an effect on the aim variables
in reality. If today e.g. employment policies are initiated, then an increase
in employment can be expected at the earliest after approximately one to one
and a half years.
Thus for the assessment of this measure,
it is not so important how high unemployment is at the time when this measure
is discussed and introduced. Rather, it is important to know how high unemployment
would be without these measures in the time in which the expected changes
enter, and how high therefore the need for political action will be today.
The reasons why political action requires
time are manifold. A certain time elapses until the occurring problem sizes are
recognized in public. Here we speak of the 'recognition lag '.
Furthermore, time is passing in which the
most appropriate measure is discussed on the political level. In a
parliamentary democracy first of all the government sets a legislative proposal,
which is then passed in Parliament in several readings. If we have a bicameral
system (Federal Parliament and Federal Assembly), then occurs possibly a
time-consuming negotiation between the two chambers. If the law is definitively
decided, it must ultimately be promulgated by the Federal President after
examination of constitutionality. Only from that date this law becomes
effective. We are talking about the 'decision lag'.
Finally, once again elapses time until the
market partners change their behavior on basis of that law so that the desired
effects enter. If it is e.g. a job creation scheme, so it requires numerous
investments to trigger an increase occupation, derived around an increase
production and of this. If it is, for example, about an employment program, so
it requires numerous investments to trigger an increase in production and,
derived from it a more employment. Herein lies the so-called 'realization lag'.
Strictly speaking, these three different
time delays are happening both at the level of policy (inside lag) and the
companies (outside lay). It also applies to the enterprises that firstly, they
must gain knowledge of the new laws, that secondly, they have to discuss the
changes that in certain circumstances are to be achieved by consulting the
workers' representatives and that thirdly, each introduced investment requires
time until the new facilities are placed and the more production gets started
and thus more workers are employed.
To what extent reliable forecasts within
the scope of the economic science can be formulated at all, is very
controversial. So assumes e.g. Friedrich von Hayek that in economic theory only
pattern forecasts, but no forecasts about concrete individual phenomena is possible
because economic events are way too complex to predict actual impacts of
certain measures.
Furthermore, emerge effects from forecasts
which lead to self-affirmation or even a self-refutation of this forecast. We
bring an example of a self-fulfilling forecast. It would have been predicted
that on a consumer good x a high price increase is to be feared in the
immediate future. This forecast will cause households to demand this good
increased to cover future needs with today's lower prices. Thus, the demand is
increasing, and with it the price. It occurs exactly what was predicted, but
not necessarily because price-raising effects had to be expected actually, but
rather because the forecast as such has triggered this price increase.
It could be objected, of course, that
these price increases are only of temporary nature, as in the future with an
unchanged structure of demand, demand will fall again, since the households
already dispose of the required goods. However, this does not have to be. It is
quite possible that due to the price increases the quantity of money and/or the
velocity of circulation of money have been expanded, such that in the longer
term a higher price level has to be expected also.
We bring an example of a self-refutation
of a forecast. It is insinuated that for a particular production area an
overcapacity was forecasted. Exactly this forecast can hold back single
enterprises from carrying out planned investments now, since the enterprises
have to fear at overcapacities that their own sales volume declines. In this
case will be invested less in this area, the feared overcapacity does not occur
at all, in fact again because a forecast was published.
How do these induced effects of a forecast
have to be assessed now? If a forecast is a desired event (e.g. forecast of
price reductions), so a self-affirmation would of course be also desirable, the
prediction itself would act as a policy measure. On the other hand a self refutation
also would be politically desirable at an event which is unwanted (e.g. overcapacities).
It will furthermore depend on the conduct
of the market partners, how the induced effects are to be assessed. If economic
agents react to the forecast (expectation) of a price change, we speak of
speculations. These can act stabilizing but also destabilizating.
If namely the demand rises due to the expectation of future prices (rates),
then the prices rise, as shown, even more, the system becomes unstable.
However, individual economic agents can
behave counter-cyclically, precisely because they expect these induced effects
and, in our example, speculate for a price reduction. Here speculation would
act stabilizing. In general, we assume that professional brokers speculate
rather stabilizing, on the contrary, laymen speculate rather destabilizing.
Now let us try to apply these theoretical
considerations in turn on a practical example. We want to ask for the economic
political need of action. It is feared that the economic policy measures impact
only after a time lag of about one to one and a half years. The question is,
firstly, if we have sufficient economic theories at all to predict e.g. the
level of employment in about 1 ½ years.
Even if we are able to do so, then arises,
secondly, the question whether a politician in a democracy is not overstrained
to initiate the economic policy measures at the right time. It would be necessary,
already in a time in which the economy is still booming, to initiate expansive,
employment-enhancing measures, and vice versa even in a time, when there is
still a high level of unemployment, to implement cyclical dampening measures
already.
Furthermore, it is to be considered,
thirdly, that not every general price increase in the upswing and not every
demand reduction in the incipient downturn is undesirable and therefore must be
fought politically. As especially Joseph Alois
Schumpeter has pointed out in the scope of his trade cycle theory, that price increases
in the beginning upturn are the result of creation of deposit money by the
banks, which in turn, by these activities itself, induce the entrepreneurs to
risk innovations.
On the other hand redundancies in the
incipient downturn are even necessary since also enterprises, in the course of
recovery, have been able to establish and keep itselves,
which are producing unprofitable under normal conditions. It is desirable that
these unprofitable enterprises disappear from the market, since only at
profitable production a long-lasting upswing is expected.
Finally, economic policy measures are
fourthly especially questionable if the conditions of stagflation are present.
We speak of stagflation, whenever at the same time occur price increases and
high unemployment continues to be present. In times of stagnation a
Keynesian-oriented trade cycle theory policy gets in trouble. If it conducts
expansionary measures, then it exacerbates the existing inflation phenomena; if
it confines itself, though, to contractionary measures, the existing
unemployment rises further.
To be continued!
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