It’s not just economics: What else determines how governments spend money?

It’s really important to emphasise that economics is by no means the only factor influencing how governments decide what to spend on. People’s principles on what a secure and fair society looks like are what guides a government’s welfare programmes, education and health systems, and infrastructure. Economic arguments are just one part of a much, much bigger conversation.

That means there are times where economic policy has much less to do with efficiency or the ‘best’ (whatever that means) use of resources, and much more to do with providing an environment in which its citizens will feel secure, fairly treated, and well-represented. So for example, for a lot of countries it might be cheaper and more efficient to buy oil pumped abroad rather than set up a costly domestic industry from scratch; but some people simply don’t feel secure depending on a foreign country for such a fundamental resource, and might not be on board with their politics. So whether or not it’s theoretically the most ‘logical’ economic policy, to a lot of people, it wouldn’t feel like the right one.

And there’s more personal examples too. When we think of security, we tend to think of police forces or legal systems. But economic security is important too. Progressive tax systems, public pension or social security funds, unemployment insurance, and poverty reduction programmes often aren’t about efficiency—they’re about giving everyone a fair shot, and the reason they differ so much worldwide is because different cultures have such varying ideas of what a fair society means.

An economist’s role in these conversations usually starts when we’ve decided what, in principle, a fair society looks like, and are trying to figure out how to make it work in practice. But before the economists step in, all of us shape the debate on what kind of society we want them to try and help our governments build.