Question

Explain: “Politicians would make more rational economic decisions if they weren’t running for re-election every few years.”

Short answer

If politicians weren’t running for re-election every few years, there would be no purpose to accommodate practices like rent-seeking, special-interest effect, incorrect regulation of resources, etc. Therefore, the politicians will make more rational economic decisions.

Step-by-step solution

Explanation for rational economic decision making by politicians when no re-election happens

Self-interest often influences the decision-making of politicians. They make decisions that fulfill their desired goals. Their main goal is to be reelected so they can make more money. Therefore, politicians adopt practices like rent-seeking, inefficient management of resources, incorrect regulation of markets, and corruption.

The small groups with shared interests try to either bribe or appeal to the politicians to support their advantage in exchange for help in elections. In the process, the economic efficiency suffers many times. Since the elections happen every few years, the politicians have set targets. To fulfill those targets, politicians make irrational economic decisions.

Example explaining how no re-elections affect the decision making of politicians

The following example will help understand what effects a no re-election will have on politicians’ decision-making.

A group of private railway companies operating in the US comes to the government to appeal for some favor. They ask the government to reduce the tax rate unreasonably in large amounts for fuel purchases. The politicians will agree with the companies if they provide them with the necessary support for the upcoming elections.

In this practice, the fuel price will decrease, and the government will fall short of the budget. The irrational economic decision by the politicians will result in a loss of economic efficiency.

However, if there were no re-elections, the politicians would have no self-interest in reducing the taxes. Therefore, the politicians will not reduce the taxes unreasonably and will make more economically rational decisions.