When policies are at odds with reality

Perhaps the most compelling question in all of economies is the breadth of global poverty; that people in some nation states are more prosperous than those in others, and this has preoccupied economists, since Adam Smith.

Growth depends upon physical capital accumulation (that is investment), growth in GDP and labour productivity that includes human capital deepening, physical capital deepening, and technological gains, in a market-oriented economy with supportive government policies.

To determine the effectiveness of a policy reform, it is necessary to distinguish between policy achievements, that is the extent to which policy has actually mirrored, and policy effects — the relation between the goals of the consensus and economic growth. There are many nuanced ways you could look at the effects and externalities of any policy decision.

However, at its most basic level, results are a direct product of incentives. Most policies and programmes that ignore intended and unintended incentives end up being lofty, utopian, and at odds with reality; being ineffective at best and highly destructive at worst. Sometimes, the impact of policy is intentional. The government might provide a subsidy to farmers to make their businesses more profitable.

Regardless of the policy decision, there has to be an immediate and well established feedback loop in the system, one that includes all affected sectors of the society. We are entering an era in which cooperation among individuals, the state, the private sector, social sector, and international institutions is becoming widely accepted. Having a robust dialogue among these many different sectors is the best way to determine true policy outcomes and evidenced impacts. A lack of dialogue among the society’s many actors promotes the degeneration of the social hierarchy, inviting irrationality, tyranny, and corruption of all forms.