Macroeconomics and Democracy While Macroeconomic

Macroeconomics and Democracy

While Macroeconomic policies are determined by the top echelon, Democratic principles demand that policies are to be initiated from the bottom, from the majority, from the general masses. When the masses experience the results of inflation, they normally demand cuts in taxes and interest. According to Democratic principles, the masses determine what the authorities should do through electing representatives who will fulfill their wishes. In the case of inflationary increases in prices and devaluation of the dollar, the masses may demand that representatives create laws which will cut taxes and lower interest rates. However, macroeconomic policies may not see the wisdom in doing so, for the decrease in taxes and the lowering of interest rates would only make prices jump through a false sense of plentiful dollars. Inflation is actually a devaluation of currency and therefore the money supply is not there to spend. What the economy would need in this case would be an increase in taxes and interest (fiscal and monetary elements of economics) to make inflation back down. This wiser course of action would go directly against the desires of the masses in an inflationary time, so the governmental policy initiated by the Chairman of the Board of Governors of the Federal Reserve often makes disappointing announcements during inflationary times about how much interest must be raised or lowered in order to control the economic policy of the nation.

Before 1936 monetary policy was based on the Quantity Theory, which purported that money supply had little to do with anything other than financial negotiations in the markets, which largely depended upon the "Gold Standard." During Ronald Reagan's term as President, the controversial Alan Greenspan became the voice of governmental economic policy, as he made periodic prounouncements on the economy and the Federal Reserve Bank determined interest rate adjustments. Greenspan never commented on the algorithms he used with inflation and unemployment targets to set the Federal interest rate, but this and his obscurity effected a confidence in the government's ability to fight recession or inflation by lowering or increasing rates.

Macroeconomics aims at stable prices and low rates of inflation based on innovation. The new products are highly priced and, through competition, are reduced quickly. This rising of new and falling of old prices is the closest thing to stable average prices possible in an ever-expanding market such as exists now. Democratic politics have always balked at manipulation of the economy through controls over it, but it appears to be necessary in order to keep the value of the dollar even. However, it has never been attempted to allow the dollar free rein to inflate and deflate on its own. When this occurred in the early part of the twentieth century, it came to a crashing halt. It is this fear that makes the democratic voter tremble and step aside as the President appoints a Federal Chief who, with his Board Member cohorts would be able to control and decide the future of the American economy (the Economist, M).