Economics is all about studying and influencing the economy. Politics is the theory and practice of obtaining public support through the exercise of power by governments, elections and political parties.  In theory, economics could be non-political, making it easier for elected politicians to weigh up economic information and decide.  In practice there is a strong link between economics and politics because the economy's track record is one of the key political battlegrounds.

Most people take an interest in economics because they want answers to questions like:  Why do we have poverty, or unemployment, or inequality?  How do we deal with them?  How does government encourage raising living standards, and how do they avoid slumps? What should be the role of business and the state?

Economic theory sets out to explain and answer such issues.  But it is then up to policymakers, politicians, or technocrats, acting on the theory to respond to them. This is because many economic issues are seen through the eyes of political beliefs.

Thus, if some people are innately suspicious of government intervention, they would prefer economic policies which emphasise reduced government interference in the economy.  In fact, so-called "supply side economics" concentrate on deregulation, privatisation, and tax cuts.  On the other hand, if some other people prefer greater equality in society, they would be more inclined to favour government intervention to pursue that end - such as stricter regulation, public ownership of certain key assets, and progressive taxation.

Some economists are scrupulously neutral.   If they stick to data and avoid cherry-picking favourable statistics, they may well come up with conclusions and recommendations that don't necessarily fit it with their own pre-conceived political ideas. They may produce papers about the case for and against tax cuts, for example, without letting their own prejudices interfere. In reality, however, there is no shortage of economists who are more than keen to provide a theoretical justification for any political experiment.

I, for one, have in the past made the case for a Pigovian tax - a tax which makes people pay the full social cost of a particular good or service, and not just the private cost. This principle of making the polluter pay provides a case for congestion charges (taxing motorists for the pollution they impose on those who don't drive), or alcohol and drug taxes (taxing consumers who cause higher health costs for those who don't consume substances).

However, I have no hope that such taxes will get implemented.   The governing Labour party is hostile to taxing anybody, PM Abela often saying that he prefers the carrot, not the stick.  Of course, this explains the government's inability to solve the traffic problem; often, people only understand the stick.  The same applies to any environmental tax.

Another interesting example is austerity. After the 2018/2012 financial crises, the mantra of the European Commission and the IMF was that the sad state of public finances could only be corrected by tightening the belt.   Malta's leader of the Opposition Joseph Muscat ran his 2013 election campaign on an anti-austerity platform. He was strongly attacked by Simon Busuttil, who warned of "flashing red bulbs."  History proved Muscat right.  Eventually, even the European Commission grudgingly admitted that austerity was not necessarily a magic wand for all ills.    

Busuttil and his leader Lawrence Gonzi seemed to subscribe to housewife economics, which argue that because in uncertain times it can be prudent for a household to increase savings to prepare for a rainy day, then everybody should increase their savings, including the government.  That is what is called the fallacy of composition. What's true for an individual may not be true for the whole. The common-sense approach may lead to an overall reduction in spending and overall demand, and that leads to a slump and unemployment.  Keynesian economics has, at its heart, a rejection of this so-called common sense.

Closely linked to austerity is the relationship between fiscal policy and monetary policy.  Until recently, government fiscal policies in most of Europe have been relatively tight, given the state of economies.  As a consequence, it fell to the European Central Bank to pursue an expansionary monetary policy to offset the deficiencies of fiscal policy.  

This hasn't been the case in Malta at all.  On the contrary, the Labour government's lax fiscal policy has continued unabated since Covid in spite of an accommodating monetary policy. The PN Opposition hammers the government on the ballooning public debt, while the government points to a lower fiscal deficit and a lower debt-to-GDP ratio as proof that its policies are working.

Recently, it has become fashionable in some quarters to condemn what they see as prioritisation of economic growth and maximisation of monetary welfare.  They argue that, rather than maximising GDP, society should maximise happiness, the environment, and being satisfied with what we have.  This too is a political issue.  On this one, the government seems to be rather on the defensive and has been tacking sail to blunt some of the criticism.

This reminds me of what the American economist Alan Blinder once called the lamp-post theory of economic policy. In his words, "politicians use economics the way a drunk uses a lamp-post, for support, not for illumination."   Eighty years earlier, John Maynard Keynes made a different criticism: that while politicians did use economic ideas for illumination, they often used outdated ideas which were no longer valid.

The problem is that economists and politicians live in very different worlds.  The number of economists experienced in frontline politics is rather small.   It is understandable that, when they offer prescriptions for, say, increasing growth or reducing the budget deficit, they aren't adept at assessing what the political costs will be and whether those costs are bearable. Meanwhile, most politicians lack the technical knowledge to understand what is going on in the markets.

Where economics can be helpful is with the trade-offs involved in policy decisions. Politicians are often tempted to succumb to wishful thinking based on their reading of a particular economist whose analysis conveniently aligns with their political views. For example, Professor Arthur Laffer's curve seemingly proves that lower tax rates produce higher tax revenue.  Then, abracadabra, some politician (Thatcher, Reagan, Bonello du Puis, and Abela/Borg) decides this means his proposed tax cut will pay for itself.  In reality, the curve is not that scientific, and it only applies in some countries, some of the time, at certain ranges of tax.  But it gives economic credibility to a very controversial political policy.

On the other hand, if one is a leftist and reads Mariana Mazzucato's work, he is likely to be sold on cases where private sector investment has only happened as a result of earlier investment by the state. Then, hey presto, some politician may decide this means his pet subsidy will both create jobs and make money. The trade-offs have been wished away. 

One way of distinguishing the politician from the economist is the type of language they use. A politician will typically say, we must do x.  Or commit to doing y.  These are normative statements, like expressions of beliefs or values. On the other hand, economists will say that if we do a, then b is likely to happen. Or, if that commitment is carried out, the costs and the benefits are such and such. These are positive scientific statements based on evidence and statistical tests.

In practice, things are more complicated. Some economists feel sufficiently strongly about their theories or statistical evidence, that they come out on one side or the other in a topical political debate, making normative statements. Sometimes, however, economists fall into the trap of letting their own values get in the way of positive scientific analysis.

My personal opinion is that economists need to reflect more deeply and take politics into account.  At the end of his book "Crashed: How a Decade of Financial Crises Changed the World," historian Adam Tooze emphasizes the geopolitical context of events in recent decades and laments the narrowness of economics. He quotes economist Abba Lerner, who famously said: "Economics has gained the title Queen of the Social Sciences by choosing solved political problems as its domain."

The focus in the majority of economic tomes is on markets.  We often hear the slogan "free markets are supreme."  Even when economists postulate a "social" angle, they fail to examine properly how social behaviours, norms, institutions, and relationships influence economic activity and vice versa. This is rather odd, given that economics is considered a social science.  Collective action and politics are messy because humans are individualistic agents, what one may call "rational fools."   

In my opinion, just because an economic model claims to "explain" something in the real world, or can be "calibrated," it does not make it logical or valid.  If one applies inadequate economic models to policy in the real world, this is akin to building bridges using flawed engineering models. Serious harm may follow.

In defence of my profession, I would say that economics deal with complex systems which make predictions inherently uncertain: economic models rely on assumptions that may not hold in reality; economic data is often incomplete or revised over time, making forecasts imperfect; economies are subject to shocks   ̶   financial crises, pandemics, wars, technological leaps   ̶   that are extremely hard to predict; and different economists have different models.  All this leads to contradictory predictions, making it easy to say, "they were wrong."

The bottom line is that economists are not omniscient and being "wrong" sometimes is inevitable. The key is that even failed predictions can teach valuable lessons about economic behaviour and assist in policy formulation.