Within the next few blogs we’ll be looking at how economists currently measure the performance of the economy, and by what criteria they are measuring it by. In this blog we’ll be discussing the macroeconomic objectives. These objectives also give a nice indication of what it is that is being valued within the area of economics.
There are about 5 objectives which are regularly listed when looking at macroeconomic objectives:
1) Economic growth
2) Full employment
3) Price stability
4) Balance of payments stability ( / external stability)
5) Equitable distribution of income
1.
Economic
Growth
Economic growth is considered to be the most important
criterion, and is the one criterion which will be given the most weight when
evaluating and comparing economies.
Economic growth sounds like a very big concept, but it
really just refers to an increase in the total production of goods and services
from one period to the next – usually one year.
So this is quite a ‘vague’ and ‘undefined’ goal – as all it
stipulates is that there must be some sort of increase in the total production
of goods and services – no matter what these goods or services are, or whether
they are beneficial to the whole of
society or not. A conventional economist
might tell you that the goods and services produced will
obviously be that which is required to be produced for the good of
society, as what is produced and how much is dependent on
supply and demand.
And so – if someone were to produce something which is of “no
value”, no-one
would demand it and the person would soon be going out of business – and within
this manner the economy eliminates any and all apparently unnecessary goods and
services, and justifies what and the quantities which are being produced: it’s
demanded! If people are willing to spend money on it, it means they value it,
if they value it, it means it brings them happiness --- so, if we produce what
is demanded then we are increasing everyone’s happiness and being a good
person!
But now obviously, since the majority of the wealth (= money
votes) lies in the hands of the minority, then we are really just
producing/providing/catering for a handful of people, and only producing/creating
things which
they think are
important, and so all the needs and wants of the remaining majority aren’t
catered for because they do not form part of the ‘demand’. And then we go and
measure the ‘performance’ of the
economy in terms of how much ‘stuff’ is
produced – and the more the better. Measuring the performance of the economy
this way, gives you no indication whatsoever in terms of how the whole of
society is faring – isn’t that what
real
performance should be about?
2.
Full
Employment
Ideally, a country wants all its factors of productions, and
in particular ‘labour’ to be fully employed. In practice however, there’s
always unemployment. The main concern with high unemployment rates are
political and social stability – as high unemployment might disrupt social and
political cohesion which then affects the economy as well. Can’t let that
happen! These are considered the ‘social costs’ of unemployment. Personal
material and psychological suffering is only a personal cost, and is obviously
not that big of a deal – otherwise the economy would not be standing on the
principles of supply and demand and the starting point of self-interest.
Full employment should really not be such a ‘major deal’ –
the only reason why we are making employment so important is because we’ve
accepted and allowed ourselves to create a system which requires you to
earn your living. And so, if you do not
have a job, you are unable to support yourself, and you are rejected by the
system. We then have people working multiple jobs getting barely any sleep just
to get by, while others live a life of extravagance, having other people
employed to do all the work while they do nothing at all. So you see, there are
two extreme polarities – and
we can easily balance this out so we can have a
world where we do not have to work all the time for the majority of our lives.
We will then not have full employment, but it wouldn’t be necessary either. Because
you’d for instance go to school while you’re still very young, then you work
for a few years – and then after that, it’s up to you whether you want to work
or do something else. Doesn’t that sound nice?
3.
Price
Stability
Price stability as an objective refers to keeping inflation
as low as possible. So prices will still change according to the interaction
with supply and demand. To check the movement of prices, the Consumer Price
Index is used – which will be explained at a later stage. Inflation is unwanted
for distributional, economic and socio-political reason, which we’ll explain
when we get to inflation (but simply put, inflation is harmful to the economic
status quo – as it creates unrest and the system stops working the way it
should be, where those who are supposed to lose now win and vice versa).
4.
Balance of
Payments
This concept of ‘Balance of Payments’ refers to the money
going in and out of a particular country – within the movement of imports and
exports, over a particular amount of time. The Balance of Payments is usually
calculated every quarter and every calendar year. In theory, the Balance of
Payments should be zero, meaning that what goes out (‘debits’) is balanced by
what comes in (‘credits’). In practice however, this barely happens – and so
the Balance of Payments can be used so show whether there is a surplus or a
deficit and from which area in the economy these unbalances are coming from.
Now we actually get to a worthwhile objective, and then this
objective is something economists do not like to discuss because it involves
subjective/normative issues – and so they rather not say anything about it,
expect that it is ‘controversial’ and then move on to the next topic. Very sad.
When looking at the distribution of income, there’s no
mention about ‘everyone deserves access to basic
resources’ or things like
that, no, no – instead they look at how ‘income inequality’ is a means of
stimulating saving and investment which apparently would eventually also
benefit the poor (but I mean, if you just give everyone a basic income, then
you don’t have poor people in the first place – I mean, it’s really that
simple). But then they say, on the other side, inequitable distribution of
income, can lead to feelings of injustice and unfairness, which may stir up
unrest and then affect the structure and development of the economy. So here
you have a ‘pro’ and a ‘contra’ for income equality/
inequality – but what is
fascinating, is that in each of these statements, it is always the interest of
the ‘economy’ as some holy spirit/entity which gets to take center stage, where
the preserving of the ‘economy’ is the number one priority – and all the
unfairness and suffering is secondary. But what is the point of keeping an
economy alive which is not
Best for All?
The only reason we currently have
middle-class, is so they
can be the ‘buffer’ between the rich and the poor which keep everything stable
and prevent any ‘unrest’ and ‘instability’ for the sake of the Preservation of the
Economy. This concept does way back, all the way to Aristotle who saw just the
same.
But this basically implies that, if we as humanity could
have gone without the middle-class and have an even
wider separation between
the rich and the poor without it causing ‘unrest’ – we would have done so.
