9.2.2

Problems for Policymakers

Test yourself

Issues for Policymakers

Governments have many issues when implementing new economic policies.

Illustrative background for Inaccurate informationIllustrative background for Inaccurate information ?? "content

Inaccurate information

  • Governments don’t have perfect information.
  • In the 2008 financial crisis, governments had no access to information showing the complexity and scale of problems created by derivatives and mortgage-backed securities.
  • Revolving doors, where regulators come from the industry they regulate is also an issue. Joseph Stiglitz argues that Obama wanted to reform the financial system, but was misled by advisors from the Banking sector that the issues were shorter term and more temporary than first believed.
Illustrative background for Risk and uncertaintyIllustrative background for Risk and uncertainty ?? "content

Risk and uncertainty

  • Making predictions is difficult and estimates are never perfect.
  • The HS2 project, expected to be first completed in 2026, has started late. The high speed rail project is being built over 10 years, whilst some people are working on hyperloop projects. If these became commercially viable, then this project would be outdated before it is even completed.
  • The Scottish government building was expected to cost £10-40 million in 1997. It cost £430 million.
Illustrative background for Inability to control external shocksIllustrative background for Inability to control external shocks ?? "content

Inability to control external shocks

  • In the global economy, different nations are all interconnected.
  • Argentina experienced a currency crisis in 1998, linked to Brazil’s decision to devalue their own currency, making Argentina less competitive.
  • The 2008 financial crisis is easy to spot in hindsight but wasn’t obvious at the time. This is because humans are irrational and can suffer from hindsight bias.
  • The refugee crisis affecting Europe in 2017 and 2018 is linked to the Syrian war, which was out of many governments’ control.

Jump to other topics

1Introduction to Markets

2Market Failure

3The UK Macroeconomy

4The UK Economy - Policies

5Business Behaviour

6Market Structures

7A Global Perspective

8Finance & Inequality

9Examples of Global Policy

Go student ad image

Unlock your full potential with GoStudent tutoring

  • Affordable 1:1 tutoring from the comfort of your home

  • Tutors are matched to your specific learning needs

  • 30+ school subjects covered

Book a free trial lesson