6 Critical Reasons Why Politics is Important for Your Economy

Political economy is an interdisciplinary branch of the social sciences that focuses on the interrelationships among individuals, governments, and public policy. Political economists study how economic theories such as capitalism, socialism, and communism work in the real world.

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What is political economy?

Some claim that political economy has no direct application to the real world. However, we have all heard about economic theory and policy that have translated into meaningful outcomes in the real world. Examples include laws on minimum wage and child labor. In addition, some argue that politics and economics are separate. However, the two remain intimately linked. The political science that defines an economist can be traced to democratic centralism and the divine right of kings that prevailed in the Middle Ages and in ancient Greece. Both were argued to be integral parts of human society. We can’t talk about economics without mentioning politics. Politics and economics must be studied to be successful and effective practitioners.

Why is political economy important?

Because economics is often taught from the perspective of personal interest, not the interests of society at large, there is often an inconsistency between the theory and practice of economics. For instance, in the “free market” world the idea of money being used as a medium of exchange can be regarded as “magic”, but in reality the market is controlled by the state. The economic policy of a country is rarely based on the objective interests of society as a whole, but rather on how it affects the interests of people from the top of society and the interests of companies at the bottom. For example, consider the history of industrialization in the U.S.

Economic theories

Most of the economy’s biggest problems stem from the failures of the economic theories that guides it, such as socialism and capitalism. These theories are based on the assumptions that people are self-interested and always try to maximize their profits. If everyone is self-interested, people are likely to look out for themselves and no longer care about the well-being of others. As a result, people will work together in a collective to achieve the shared goal of the society, usually through the government’s intervention. This way, everyone’s interests are served and there will be no room for inefficiency or corruption. These are also called the invisible hand of the economy, which economists rely on when making economic decisions.

Conclusion

Everything has a price tag, and with the current oil market, it would seem that everything on the planet is up for sale. As long as there is demand for crude oil and fossil fuels, some corporation will be willing to pay a premium to purchase a resource at an assumed discounted price. Many resources used in manufacturing are sold at a discounted rate because of the labor-intensive nature of the manufacturing process. Consequently, workers who earn their living by providing that labor are given a benefit above what they could earn in an environment with cheaper, less labor-intensive resources. The lowest-paid workers are the ones paying the highest cost. The existence of a minimum wage shows that some people believe that every individual should have the right to a basic standard of living.

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