What is the objective of a good economical policy?

[Lee1026]

As you all know, there is no shortage of economy related battles here. But something that always hides behind the surface of every debate is this question: what is the objective of a good economical policy anyway?
For example, one answer might be to maximize GDP. Another answer might be maximize GDP per capita. But some would say that neither is a very good objective, as it does not take in account who gets the money, and it ignores social inequality. Some would judge a policy by how well it does for the society's poorest.

I propose this as the goal that all policy should be trying to maximize: the average Logarithmic income of the society. That is, for each citizen, you take the logarithm of his income, and then you average over that. This have the benefit promoting wealth at the bottom, where it is most likely to improve a person's life, while still taking in account the well being of everyone.

Agreement, disagreement, comment?

[Viking Prince]

Perhaps there should not be a single goal or a single forumla for success. We are a represerntative democracy in the USA for that very reason. A series of laws are better than a single comprehensive law. Why not promote policies that increase gdp. Other policies that assist the poor. Etc. No need to have a single solution.

[Bovril]

I strongly disagree that increasing income in whatever sense is the sole basis of a good economic policy. How about reducing working hours, favouring sectors which have obviously vital social goals, increasing job security, improving working conditions and so on and so forth? After a certain point where the basic standard of living of a society is met, increasing wealth does not increase an individual or household's happiness, and after a point starts to correlate with a reduction in it. So in my opinion, increasing incomes for people earning above the national median should be an incidental goal at best.

[webMaster412160]

Stop investing in things that are not gonna make profit.
My opinion

[Desperado †]

I'd say that the objective of government should be to increase the equality and well being of it's populace, and secondly of the worlds populace.

Greater income obviously does not correlate with the first point, and does not necessarily correlate with the second point. A richer society does not equal a happier one by far, even if all are equal. I'd say that once basic needs are met and also adequate health care and education, more money and luxuries only makes us sadder in the long run.

When questionnaires have been given out to (not immediately starving) third world countries and developed countries, asking the question 'Are you happy?' the former answered yes far more.

[Lee1026]

Perhaps there should not be a single goal or a single forumla for success. We are a represerntative democracy in the USA for that very reason. A series of laws are better than a single comprehensive law. Why not promote policies that increase gdp. Other policies that assist the poor. Etc. No need to have a single solution.

Problem is, that does not do very well when you have to make trade offs. For example, policies that assist the poor often cause a GDP decrease. How do you decide whether it is worth it?

[BNS]

For many it comes down to morality. I'm for a economy that gives the most freedom to the individual, which happens to be one that maximizes productivity, at the same time I recognize the good of a limited social safety net.

[Lee1026]

When questionnaires have been given out to (not immediately starving) third world countries and developed countries, asking the question 'Are you happy?' the former answered yes far more.

Problem is, we really don't know if it is because people are happier or because people simple lower bar for answering that question.

[Bovril]

Problem is, we really don't know if it is because people are happier or because people simple lower bar for answering that question.

We can use measures of mental ill health to give an indication. They point in the same direction.

[Lee1026]

Mental illness have a very low detection rate.

[Bovril]

Mental illness have a very low detection rate.

Random sampling of a population seems like a fairly decent way of detecting general levels of mental ill health to me. Do you disagree, or are you refering to the low level of reporting of mental health problems in certain countries? If the latter its by the by, since we have better data available.

[Lee1026]

I was referring to the fact that certain societies (predominatly the first world ones) are much more prone to admit to mental illness then others. Whether it would show up in randomized testing, I am not sure, as it is hard to diagnose it when the person is not cooperating.

[Djûn]

Attempting to maximise the HDI isn't too bad an objective, IMO. I must say that I cannot recall precisely the formula used to calculate it, but it takes into account things such as GDP per capita, literacy and numeracy rates, standard of living of the populace etc. Seems to be a pretty universally good measure of a nation's development.

[Viking Prince]

The main purpose of government is the rule of law. The government needs to set the rules for behavior and to act as the referee. Government records on making decisive and good choices to direct economic activity is suspect at best. A modern economy is complex and dynamic. Governements, by their nature, are slow to change and rules driven. The roles of traffic cop and judge are a better fit than trying to lead the economy. Gathering and publishing the data of the economy is a role consistent with the rule of law. Many of the aspects of the modern government regarding the economy are wasteful and even damaging. The US Treasury, US Dept of Commerce, the Federal Reserve, etc. are better suited in support roles rather than leading the economy.

[Lee1026]

But that is about specific policies; whether a certain policy works have little to do what the policy is trying to do in the first place.

[Viking Prince]

But that is about specific policies; whether a certain policy works have little to do what the policy is trying to do in the first place.

Sorry, I do not understand.


My point is that the government should not be focusing on specific objectives. Such focus will usually result in errors. The focus should be on the rule of law, being the judge in disputes, and staying out of the way.

What should the objective be in employment? Does this change as times change? What about the cost of captial? How should risk be factored into objectives for returns on investment? What about objectives for education levels, capital labor ratios, compensation for labor versus capital, etc.? It bothers me when such questions have stated answers by government in the form of economic objectives. Rather than legislate and regulate in a micro fashion, we should allow for a wide range of regulatory tools and a wide latitude for judgement by many competing agencies to establish broad and not narrow objectives.

[Lee1026]

What I am trying to say is that the objective is what the government is trying to do; the best way to get to that objective may indeed to be doing nothing at all. But even then, we can talk about what the objective is.
For example, one question might be "if we can have a 20 trillion dollar economy where the top 1% gets 95% of it, is it better or worse then what we have now?". The formula is simply a systemic way to evaluate all possible permutations of how wealth is distributed.

[Viking Prince]

Sorry, I do not understand.


My point is that the government should not be focusing on specific objectives. Such focus will usually result in errors. The focus should be on the rule of law, being the judge in disputes, and staying out of the way.

What should the objective be in employment? Does this change as times change? What about the cost of captial? How should risk be factored into objectives for returns on investment? What about objectives for education levels, capital labor ratios, compensation for labor versus capital, etc.? It bothers me when such questions have stated answers by government in the form of economic objectives. Rather than legislate and regulate in a micro fashion, we should allow for a wide range of regulatory tools and a wide latitude for judgement by many competing agencies to establish broad and not narrow objectives.

What I am trying to say is that the objective is what the government is trying to do; the best way to get to that objective may indeed to be doing nothing at all. But even then, we can talk about what the objective is.
For example, one question might be "if we can have a 20 trillion dollar economy where the top 1% gets 95% of it, is it better or worse then what we have now?". The formula is simply a systemic way to evaluate all possible permutations of how wealth is distributed.

Thanks for the response. I am just a simple guy trained as an economist and wandering in the world of business. I stated the above and see no reason for the government to be very concerned with what you are calling objectives since they usually get it wrong.

Your example is out of place though since you are simply stating as a possible fact something that is first not true and second not necessarilly bad by definition if it were true. Why suppose an objective by formula will achieve a better result than what actually is true? Why suppose the system is flawed when it does not correspond to a bureaucratic formula?

We have enough created problems with Fannie and Freddie being managed by such objectives. I really doubt economic objectives are useful for the government to implement policy and choose winning positions artifically.

[Bovril]

ignore (mod delete?)

[Lee1026]

I posed the question more as a philosophical one then a practical one. The objective function, whatever it is, is not meant to be a recipe for action. It is simply a way of saying which outcome is better.