Understanding Political and Economic Issues in Government: Series 4

When it comes to understanding the management of public finance and its relationship to national economic management, it’s important to recognize that the government controls the economy through two main approaches: fiscal policy and monetary policy. The foundation, concepts, objectives, and evaluations differ between these two, and they are not the same as private financial management. Moreover, they are distinct from personal finance management, as well as the concepts of investment and debt financing.

Economy vs. Investment
The economy revolves around increasing productivity, particularly in the production of goods and services. It’s important to note that the economy differs from investment, which generates employment and drives production. Investment serves as a driver for productivity by creating jobs and producing goods and services, ultimately building the nation’s income and Gross Domestic Product (GDP).

Land, for example, is not an economic activity by itself. It is one of the factors that can enhance productivity when activities are conducted on it. Simply investing in land does not contribute directly to economic activity. However, using land for productive development or activities can drive economic productivity. Selling land is a process of liquidating a fixed asset into cash, which can then be used to buy other assets or for reinvestment—this is a broad topic in itself.

Finance and Its Complex Role
Finance is closely tied to money, a complex issue that requires understanding. Money is a tool for exchanging goods or services but it’s not capital, though it can be used to purchase capital, such as machinery or to build a factory. Money, in and of itself, is not wealth—it is a measure of productivity and wealth. These are professional and academic topics, so I will try to explain them in simple terms:

• Economics: The science of producing goods.
• Economics: The science of providing services.

All of this is managed by humans and guided by finance, which acts as a steering wheel to drive these activities—like how a car is controlled by gears, brakes, clutch, and accelerator. Finance is the steering mechanism that determines direction.

The economic world is built on science, constructed by engineering, expedited by technology, and driven by financial engineering and technology, which is as complex as physical engineering. Whether producing and selling a small item like a needle, financial elements drive its processes—just like a car’s gears or brakes. Finance steers and measures everything, guiding the economy through ups and downs, left or right, forward or backward.

Debt Financing and Misconceptions
Debt financing is often misunderstood. In the village mindset, borrowing money is seen as something only the poor do, and the more you borrow, the poorer you’ll become. This is a mistaken view. In reality, borrowing is a tool the wealthy use to build wealth even faster.

Take, for example, the difference between walking, riding a bicycle, and riding a motorcycle. Walking might take 15 minutes, riding a bicycle 5 minutes, and riding a motorcycle just 1 minute. Why is the bicycle faster? It has gears. Why is the motorcycle even faster? It has gears and an engine—financial engineering operates in a similar way. Like transportation modes, financial gearing allows you to move faster toward wealth.

The bigger and faster the vehicle (or the loan), the greater the perceived danger. However, just as every vehicle has standard operating procedures (SOPs) for safety—whether a bicycle, motorcycle, car, or airplane—so too does financial engineering. Don’t judge all motorcycles just because one falls into a ditch due to faulty brakes or a careless rider; financial systems need to be understood in their complexity.

Politics, Economics, and Finance
Political discussions frequently focus on economic issues, such as national debt, foreign investment, and equity concerns. These are heated topics, but finance often doesn’t make it onto the agenda. This is like driving a car without a map or flying a plane without a compass. People sometimes assume that using a flashlight in the dark is sufficient, but without financial understanding, it’s just guessing in the dark. Proper financial planning is crucial.

Many people understand money and how to use it, perhaps only in terms of cash. However, cash represents only 10% of the total money supply in a country. Where is the other 90%, who uses it, and how is it engineered? This doesn’t even touch on securities like stocks, bonds, and gold, which can easily be converted into cash.

Many study economics, business, investment, and finance up to the degree, master’s, or even doctoral levels. But it’s important to remember that these academic and theoretical studies often focus on what and why, not how and when. To truly understand these matters, practical experience is required in fields such as business, investment, banking, insurance, and trade—especially budgeting and planning. This doesn’t even include topics like trade, forex, inflation, bilateral and multilateral relations, or trade balances.

The key takeaway is that financial management differs depending on the entity:

• Government finance focuses on GDP and government spending.
• Private finance focuses on revenue and profit.
• Personal finance focuses on saving, investment, and wealth-building.

Looking Ahead
In politics, many issues regarding the nation’s economy are debated, criticized, and questioned, such as national debt, foreign investment, and government projects. But these discussions often fail to consider the broad and complex interconnections with finance. This is akin to opening up a computer and examining its inner workings without having the technical knowledge—ask yourself, do you have the knowledge and experience to comment or critique? Trying to fix something without a clear understanding may only make things worse.

This is what happens in the political landscape of the country. Many people don’t have a clear view, yet they influence others who also lack knowledge. In advanced countries, people are knowledgeable, experienced, and progressive, while in less developed countries, the blind often lead the blind.

In Series 5, I will discuss government planning and budgeting, and how it differs from the private sector and personal finance. Such knowledge is important when evaluating government issues, rather than simply applying personal experiences and logic. These are common approaches used in politics to manipulate emotions and serve as political weapons. Lacking proper knowledge but still talking is typical in politics, where reasoning is often used as the product.