The politics of economics

The politicians say ‘we’ can’t afford a tax cut. Maybe we can’t afford the politicians. – Steve Forbes

While the world castigated the election of Donald Trump on November 8, India woke up to the ugly truth they would have to face. Notes of five hundred and thousand could no longer be circulated and India faced it’s second demonetisation in its independent history. While some praise this move, this was largely condemned by economists. This massive move was taken without consideration by real economists and Raghuram Rajan, India’s then RBI governor and one of the most prestigious economists of this world himself condemned this act. If the economists didn’t like the move, then why was such a major economic policy was taken?

To understand that, we must first understand the politics of Narendra Modi, the Prime Minister and the head of the ruling party in India. Apart from his agenda of hindutva, he rose on a wave of anti-elitism. A large proportion of his voter base are not proficient in the fine details of economics. When the announced his move of demonetising the economy, he said that it will bring black money back from the richest of the richest. This was widely accepted as it was seen as a way of bring the rich down to the level of the poor. 99.9% of the scrapped notes came back to the Reserve Bank of India and it was a catastrophic policy fail.But, due to a tremendous positive respond by the people, specially poorer sections of the society, it is evident that is was a political success.

Similarly in the United States, Donald Trump’s get a lot of his funding and support from huge corporations.The corporate tax was cut by 14% and the 20% corporate alternative minimum tax was repealed. It intends to promote jobs and growth, but at the end of the day, the corporations do save a lot of money.

It is not only India and the US where politics influence the economics of the nation. These are some countries where the influence is on the minimum. In several countries, dictatorships in particular, economies are so heavily influenced by politics like Venezuela that only those who help leader keep power are benefitted by several economic policies. As long as political influence of economics help rulers retain power, the influence shall remain.