MatheusCqb
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The election period is marked by great competition between parties that want to convince voters that they should be in power. For this, the parties use different strategies to prove that they are the ones that will best represent the electorate's interests. However, while they engage in propaganda about what they stand for and what they have already done, they can also cause complete economic disasters by betting on voter ignorance.
For example, the ruling party can manipulate the economy to create a temporary prosperity that in the long run will generate a crisis. This seems to be the current situation in Brazil.
How do governments work?
We can think of the functioning of government in a similar way as we see firms. In standard microeconomic analyses, it is assumed that firms aim to maximize their profit. One of the strategies for this is to produce to the point where the marginal cost of production equals the marginal revenue, thus reaching the point of greatest profit.
Governments can be seen in the same way. Within parties, individuals can achieve their goals only when they are in power. In this way, they act seeking to maximize the number of votes during elections.
Likewise, voters will vote for parties that serve their interests. Often these interests are linked to individual income. Therefore, there is a tendency for the vote to go to the party that the voter expects will bring him the greatest return.
The government tends to implement the public policies most demanded by its voters in order to obtain the largest number of votes. Thus, it will increase government spending to the point where the marginal gain in votes equals the marginal loss in votes generated by the cost of funding those policies. Therefore, the government tends to increase its spending to the point where it still brings back votes for it. The same goes for other types of public policies.
How can this destroy the economy?
At the same time that this mechanism of democracy guarantees that the government will take care of part of the population's demands, it also allows policies to be carried out only as a way to deceive the voter.
The example I take here are the crises generated by electoral cycles, known as the Political Business Cycle. The voter, as much as he is seeking his own interests, suffers from uncertainties that change who they will vote for. Uncertainty can be the result of both ignorance regarding the return of public policies and information asymmetry in which the voter does not have access to all the information necessary to perform the best vote. The parties in power use this to deceive the voter.
The costs of increasing government spending, for example, do not always appear at the same time as they are executed. In this way, the party in power has incentives to increase spending during the election period and let the costs be noticed only in the following year. Thus, the voter associates prosperity during the election period with the party that is in power, while the costs of these policies will only be noticed later on.
But this strategy is not always smart. If the ruling party is considerably ahead in the polls, it would have no reason to do so, given that the following year it will face problems in dealing with the crisis.
However, in a fierce electoral contest or in the case where the party that is currently in power is behind in the polls, this strategy makes more sense for two reasons. First, because it is the way to guarantee more votes that are missing to win. The second possibility is that the party may realize that there is no way to win the election, thus assuming a kamikaze posture where the party in power, knowing that it will lose, executes all kinds of policies that generate short-term prosperity, but makes the country ungovernable for the next party to win the election. Finding a destroyed economy, the party that won the election will have a hard time getting re-elected, giving a new chance for the politician who executed this strategy to return to power.
For example, the ruling party can manipulate the economy to create a temporary prosperity that in the long run will generate a crisis. This seems to be the current situation in Brazil.
How do governments work?
We can think of the functioning of government in a similar way as we see firms. In standard microeconomic analyses, it is assumed that firms aim to maximize their profit. One of the strategies for this is to produce to the point where the marginal cost of production equals the marginal revenue, thus reaching the point of greatest profit.
Governments can be seen in the same way. Within parties, individuals can achieve their goals only when they are in power. In this way, they act seeking to maximize the number of votes during elections.
Likewise, voters will vote for parties that serve their interests. Often these interests are linked to individual income. Therefore, there is a tendency for the vote to go to the party that the voter expects will bring him the greatest return.
The government tends to implement the public policies most demanded by its voters in order to obtain the largest number of votes. Thus, it will increase government spending to the point where the marginal gain in votes equals the marginal loss in votes generated by the cost of funding those policies. Therefore, the government tends to increase its spending to the point where it still brings back votes for it. The same goes for other types of public policies.
How can this destroy the economy?
At the same time that this mechanism of democracy guarantees that the government will take care of part of the population's demands, it also allows policies to be carried out only as a way to deceive the voter.
The example I take here are the crises generated by electoral cycles, known as the Political Business Cycle. The voter, as much as he is seeking his own interests, suffers from uncertainties that change who they will vote for. Uncertainty can be the result of both ignorance regarding the return of public policies and information asymmetry in which the voter does not have access to all the information necessary to perform the best vote. The parties in power use this to deceive the voter.
The costs of increasing government spending, for example, do not always appear at the same time as they are executed. In this way, the party in power has incentives to increase spending during the election period and let the costs be noticed only in the following year. Thus, the voter associates prosperity during the election period with the party that is in power, while the costs of these policies will only be noticed later on.
But this strategy is not always smart. If the ruling party is considerably ahead in the polls, it would have no reason to do so, given that the following year it will face problems in dealing with the crisis.
However, in a fierce electoral contest or in the case where the party that is currently in power is behind in the polls, this strategy makes more sense for two reasons. First, because it is the way to guarantee more votes that are missing to win. The second possibility is that the party may realize that there is no way to win the election, thus assuming a kamikaze posture where the party in power, knowing that it will lose, executes all kinds of policies that generate short-term prosperity, but makes the country ungovernable for the next party to win the election. Finding a destroyed economy, the party that won the election will have a hard time getting re-elected, giving a new chance for the politician who executed this strategy to return to power.
