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The Nobel Laureate Milton Friedman once commented that different schools of economic thought are a myth: there is only good economics and bad economics. Good economics will help a nation to achieve growth, price stability and prosperity while bad economics will achieve just the opposite.

Although there is very little controversy regarding the end objectives of any economic policy, the means by which such feat is to be achieved does not have any clear-cut answers and still remains a matter of serious pedagogical interest among the economics profession.

N. Gregory Mankiw, former Chairman of the Council of Economic Advisers to President George Bush and a professor at Harvard, lists down in his textbook, Principles of Economics, the five most debated macroeconomic issues among policymakers today.

1. Should monetary and fiscal policymakers try to stabilize the economy?
2. Should monetary policy be made by rule rather than by discretion?
3. Should the central bank aim for zero inflation?
4. Should the government balance its budget?
5. Should the tax laws be reformed to encourage saving?

All these issues can be reduced to mainly two inter related questions: Should economic policies be based on short-term considerations or long-term concerns? And, should the government intervene in the market process or stay away from it? If one could answer these two questions satisfactorily, then we have answers to all the above questions.

In short, the debate is all about a trade-off in economic policy decisions between the short-run and long- run.

Economists who favour the short-run approach, inspired by British economist John Maynard Keynes’ often quoted dictum, ‘in the long run we are all dead’ will favour an active interventionist approach by the government and central bank. Hence they, in general, will favour the fine-tuning of the economy in the short run using discretionary monetary and fiscal policy (irrespective of whatever the consequences are in the long term), support a budget deficit and a tax regime which incentivises consumption.

Conservative economists on the other hand, whose main focus is the ‘long run’, will restrain themselves from using such tools in an attempt to artificially stabilize the economy in the short run. This group of economists, generally, will also support a limited Government, a monetary policy based on long-term rules rather than discretion, a balanced budget, a stable tax regime which incentivises saving and a zero or low inflation regime.

So, which approach constitutes good economics? There have been no clear-cut answers and the debate still continues. However, with the repeated failure of short-run accommodative economic policies to deliver a stable economic environment in the long-run, the bias has over the period shifted towards the ‘long-run’ supporters. More and more economists today have started to favour the eternal virtues of thrift, limited Government, balanced budgets and monetary discipline, at least in theory.

Unfortunately, the ‘short-run’ approach is still a stark reality because of its popularity with politicians of all hues. Most economic policy decisions are made after factoring in the political demands of the day – hence we often face the debate whether good economics is bad politics and vice versa.

In fact economists have found evidence of political business cycles in several countries – a theory that explains how the Government manipulates the macroeconomic variables of the country to better its position for re-election, thus causing a business cycle.

Political business cycles are a direct result of the ‘short-run’ nature of democracy which incentivises politicians to maximize their current returns at the cost of the long run. This indicates that the political systems based on short-term democratic rule are incompatible with good economics. Can we then have a political system, which will have incentives to obey the laws of ‘good-economics’?

One plausible option would be to take the democratic state out of the regulation of money and banking i.e. no monetary policy as well as no more "macroeconomics". Laissez-faire banks based on the principle of hundred percent reserve banking would be the order of the day. This will lead to sound banks and sound currency. Only then will greedy, short-termist politicians be unable to interfere in the most important regulator in the market economy: MONEY. With the de-nationalization of money, we can continue with democracy. Just that now, the currency and the banking system will be out of the reach of short-term political ends. It is then that good economics and good politics will meet.