Heuristics and Cognitive Biases in fiscal policy.

Synopsis: A bias has become evident in how governments tax and spend across most economies. Governments have increasingly focused on infrastructure such as roads and ports that create short-term jobs and do not cause people to develop advanced skills, indispensable for tech-related sectors. Rather than allow this bias to persist, policymakers should choose specific industries — such as automotive, industrial machinery, renewable energy, and pharmaceuticals — that will create sustained employment and up-skill the workforce and subsidize the wages in these industries. By reducing the cost of hiring new employees and training them, the government will create higher-skilled employment, wages will rise and tax revenues will equally follow suit. All this is only possible if fiscal policy prioritizes wage subsidies, infrastructure spending, and tax cuts continuing to play a limited role in other to support sustainable and inclusive economic growth.

Fiscal policy is defined as government spending, designed to support economic growth, higher levels of employment, and faster wage growth. In the last decade, countercyclical monetary policy has underpinned the broad consensus in economic thinking. However, fiscal policy has failed to achieve broader socio-economic objectives such as sustained employment and wage growth for workers. This is driven by biases in fiscal policy that advocate tax cuts and government spending in roads, ports, hospitals, and schools instead of advanced manufacturing in the auto sector, health care, and…