What Governments Do, Don’t Do, and Can’t Do

What Governments Do, Don’t Do, and Can’t Do

Where the action takes place

When you consider what ‘government policy’ really means, most tend to think of actions made by government on production, distribution, consumption and identity issues, and rightly so. Public policy mainly concerns both the formulation of goals across these many areas of life and implementing ways of achieving these goals (Australian Public Policy, Fenna). 

What gains little attention is the concept of inaction as a considered public policy stance. Governments making a conscious choice not to interfere in a policy area can be as important as the deployment of their scarce resources (attempting) to improve some part of our lives. There is no doubt that government has a role to play in our market economies; whether it be regulating (eg. to maintain market competition), investing (in key infrastructure), or taxation/subsidies (situations of market failure) to yield a certain social and/or economic outcome. However, there are many areas of our lives that government should just stay out of; for example, minimising government interference in our personal economic choices is, in my opinion, vital to our economic prosperity. We are the best judge of what we need and want in our lives, and hence we are in the best position to maximise our utility (economics speak for our ‘satisfaction’) with the limited personal resources at our disposal.

The current political climate surrounding fiscal credibility – arising due to the unsustainable budget deficits and government debt racked up by south European nations – means that frugality and fiscal conservatism is the new trend amongst the world’s finance ministers. In Europe, governments have been forced into austerity by two powerful forces: (1) the market via spiralling yields on their government debt, and (2) by the IMF and ECB. This has had spill over effects to Australian political discourse and economic policy. There has been clear shift from the spruiking of spending programs on middle-class entitlements under the Howard-Costello government, to gloating about caps on annual spending growth and surpluses in 2012/13 under the Gillard-Swan government.

The positive bi-product of this trend is that the Australian government can’t afford to interfere in areas of social and economic policy where, in other circumstances, they would be all too happy to intervene. In most cases, this is a very good development, as governments usually make a mess of things, even when they have the best intentions. Long may fiscal conservatism continue!

Governments can’t control the economy (even if sometimes they wish they could):

Economic policy is clearly an area that government gives a considerably amount of attention– not only because it affects the standard of living and quality of life of their people, but more importantly because it can single-handedly decide an election. The most common statistic used at the moment is one surrounding the US economy and election results:

No American president since Franklin Delano Roosevelt has won a second term in office when the unemployment rate on election day topped 7.2%

This statistic should make Obama a little worried. What is truly amazing is the underlying assumption being implied by this quote – that US presidents can actually control the performance of the US economy, and hence the unemployment rate itself. The problem is that we live in market economies that cannot be controlled by our politicians.  Of course, governments can implement economic policies (tax structures and spending priorities) to indirectly affect the outcome of the overall economy. The problem is “neither theory nor practice provides a wholly reliable guide to how these levers…actually work; or indeed, whether they work at all” (Fenna).  The harsh political reality is the general public do not care about these technicalities – their voting is still shaped considerably by their personal economic situation and that of their families at the time they arrive at the ballot box. Ultimately, I find it incredible that political careers are created, maintained and destroyed by the largely independent workings of the economic business cycle. Politics is a tough business.


 Follow me on twitter @dean_pagonis