Question

Is there sometimes a conflict between good economics and good politics? Cite an example of such an issue.

Answer 1

Yes, there is sometimes an issue between good economics and good politics and usually the latter gets more importance. There are many times when a policy is formed not to boost the Economy but to lure a certain set of voters. For example, if the budget is in deficit, it is not good for the economy to give subsidies on certain crops to the farmers, however, because of vote bank politics, the government might still give away the subsidies to please the farmers. Sometimes, just before the elections the government forces the central bank to keep the inflation down. For example, for a long time US faced lack for not having a carbon tax. Despite the fact that it is necessary to tax polluting firms in order to reduce economic inefficiency it was not implemented, infact for a long time none of the parties even advocated for it. US is one of the worst polluter;s of the world. This is a classic example of how politics took over good economics.