Consequences of each economic policy choice

The models we have just analysed involve different points of view when making decisions about economic problems. Those issues are complicated and constitute for the economic authorities a decision regarding what measures to take when imbalances occur. Nonetheless, macroeconomic problems can be approached with sufficiently good knowledge thanks to theoretical proposals and empirical research. However the final decisions inevitably respond not only to scientific data but also to the preferences and ideologies of those who adopt them.

And this shows that the question of the effectiveness of the different economic policies depends not only on the framework of theoretical models as on the objectives that they want to achieve as a priority. If the fiscal policy and monetary policy were equally effective, models can predict that the same effect will be achieved by increasing the money supply or public spending. However, there is an obvious distributional effect that is not taken into account: although an increase in production and global income can finally be achieved, it is not the same if it is enjoyed by, for example, the holders of profitable assets or by the unemployed or pensioners. 

The different institutional framework within which these two policies are implemented must be considered. While the fiscal policy is subject – or at least should be – to the direct control of Parliaments, which are the seat of popular sovereignty, monetary policies are designed by central banks, institutions that are much less influenced by democratic control, especially since they have become independent. In short, it turns out that all economic policy measures are conditioned by value judgments and ideological assumptions and, above all, by the pre-eminence of one or the other interests in the social system.