The Magic Money Tree and Other Economic Tales

Lorenzo Forni examines the tension between economics and politics and considers why so many mistakes in economic policy-making are made for political reasons In an age of uncertainty, voters look to politicians for protection and support and politicians are all too eager to cater to those needs by using the state budget, trade policy and monetary policy to prop up labour markets and the wider economy and, in turn, enhance their own approval ratings. However, such short-term economic gains to ensure electoral success, Forni argues, frequently spell disaster. Ignoring budget constraints can result in longer-term recession and economic downturns, which can then incur painful austerity measures to bring the economy back into balance. Forni looks at the many unsustainable economic policies that have been implemented to create more wealth, greater well-being and to satisfy voters when the economic realities - there is no magic money tree! - would recommend a different and more prudent economic course.