 Hi guys, it's MJ and in this video I'm going to be continuing my studying journey This time we're going to be looking at The syllabus objective which says demonstrate knowledge of the influence from government policy over the commercial and economic environment so we're talking about the government and Yeah, lots can be said around this organization What I think is quite interesting is I mean governments are elected on how well they can You know get the people on their side So they normally stir up emotions or they're very charismatic characters and they're very much good at getting people to like them They're not necessarily trained when it comes to economics and finance So they will sometimes have a financial minister or a you know financial department, but at the end of the day They don't have maybe the best understanding of economic policies Which means when they make certain decisions it has sometimes undesirable consequences I'm going to try hold back though not go to to mean when it comes to governments and Try maybe focus more around The theory although like I said these are my studying out loud videos, so it is very much opinion-based and Remember to always consult your textbooks for the proper facts. Okay Government policies what what are the main types of government policies? We've spoken a lot about monetary policy in one of the earlier videos This is probably I think the best way to for the government to handle the Economy is through monetary policy monetary policy is you know where you set interest rates and you Yeah, basically anything to do with the money supply so printing money Buying securities selling securities all that kind of stuff falls under the money supply and monetary policy Since 1970 was adopted by quite a few governments, which was great because it did allow for some great economic growth So monetary policy in my opinion is good But it is something that the government outsources to central banks Who are supposed to be? Independent but since the government sets the directors that independence is Very much questionable Okay, so what is another government policy? Well another main one is something known as fiscal policy Now fiscal policy is bad. So this is what they're doing before the 1970s Mainly from from Keynes economy economics Very much governments. So my monetary supply is government should control the supply of money and not intervene fiscal policy is that the government should basically be micromanaging the economy controlling demand cost and You know influencing a whole bunch of various things so stuff that comes under say fiscal policy is setting of tax and Public spending so the government feels it's it's objective to spend lots of money in order to stimulate the economy and The only way for them to spend money is if they raise tax and this is where it gets kind of dumb. So What happens is when you increase tax? You reduce Productivity Okay, the reason being is that you've reduced the the reward So the incentive has decreased for people to to be productive do business or those those type of things So what the government says is okay? Well since productivity is down and we have some money We're gonna use public spending We're gonna use public spending We're gonna increase that to increase the economy. Okay to increase product productivity But you kind of see where the weird part comes in is in order to do public spending they need to have tax So by increasing tax They decrease productivity to only increase public spending to increase productivity. So the net effect Sometimes is nothing changes to productivity or sometimes it could even decrease Productivity in the sense that if the tax is so high it reduces productivity All the incentive for productivity, then it reduces then government thinks, okay We need to spend more money. So let's raise taxes more so that we can spend more Increases productivity a little bit, but that increased tax burden decreases productivity even more. So I mean It's basically done No, I should be this is not a lecture. This is I'm I'm a student. I'm studying for these exams I'm not a lecturer. So don't take whatever I'm saying as fact think about it yourself But in in my opinion physical policy is kind of dumb Your public spending to increase productivity But in order to do that you have to raise taxes which decreases productivity So the net effect is kind of yeah, just rather not do it leave productivity alone and Focus on the monetary supply Okay, so those are the two but you can see that's what we were doing before the 1970s in time Species get smart says more knowledge is passed down. So we are being a little bit smart in that well I mean specifically first world countries South Africa has got a bit of a weird economy With regards to fiscal policy Okay, what else does the government do? Another interesting thing is this national debt management policy so national debt Management Policy, okay What's interesting is that most governments in the world are in debt Okay, that means most governments owe money to somebody else Who do they own that money to well the majority of the debt holders are pension funds Whose members are the people of the world? So it's quite weird we kind of think of the government as you know being this big controlling force Yet it is the people who vote them in it's the people who own their debt so Governments do need to be More What can I say there needs to be nicer to their population in the sense that the population votes them in and controls their debt But because governments is a very concentrated You know few people with a lot of power compared to the general population Which is a lot of people with a little bit of power each they can sometimes get away with some interesting policies But job national debt management policy is controlling the debt debt basically comes down to exports minus imports The idea being that if a country exports more than it imports so if exports are larger in the country is seen as rich or Making a profit and if imports are higher than exports Then the country is seen to be you know in debt and this is bad I'm not so convinced on that such a standard thing I think it's good for a country to have a little bit of debt. I think better to have debt than say surplus I mean they can use the debt They can manage it quite comfortably You know they can always adjust interest rates and and they control the monetary supply So debt can't really run away from them except if they're a country like Greece Who doesn't have control of their monetary supply? So am I going back into opinion mode, but I kind of think Monetary policy should be saying that each government should control by themselves So this whole European Union where they kind of like centralize that I don't think that's so good So at my current standing, I think Brexit is Going to be is not going to be as bad as everybody made it out to be I think everyone's overreacted about Brexit and That it actually might be good for for England in the long run, but that's just my opinion at where I look I'm still in the beginning of my studying. So I might change my mind there. I feel that You can get in trouble for having an opinion on Brexit majority of the world is against it, so They just to have an opposing opinion. Okay, but let's give it a turn back to back to the work. So yeah, the Governments national debt management policy So, I mean one thing it does here, which I think is also again really dumb is that it taxes imports So it wants to try and discourage imports So it will tax that so that people buy local and stuff like that The problem being is that other countries say well if you're taxing our imports, we're gonna tax your exports and Whoop-de-doo We've got more tax on each of us and this is bad. Remember tax-low is productivity That was maybe the one good thing about the the EU is That they did have tax agreements and I think that's what everybody is freaking out about around Brexit is that With England leaving the European Union will these tax agreements stay in place and I think they will because they've been official for both both England and the European Union I mean tax is bad So it would be better if they kept their tax agreements and didn't start taxing each other just because England's gone out Although that might be one of the main reasons for being in the European Union was the tax advantage so That's gonna be a very interesting thing to see is tax and how that plays out in the whole Brexit thing But I mean otherwise national debt management policy. It's it's very simple. It's it's economics We should all be comfortable with that Let's maybe move on to one that's a little bit more exciting or a little bit more challenging to to understand and that is exchange rate policy Okay exchange rates. Oh my gosh, these things are complicated so exchange rate policy and The reason why I said it's difficult is because There's nothing really you can peg your currency against So I mean when I'm comparing say RANS, which is the currency of South Africa to American dollars It's not like oh, I can keep checking RANS to American dollars And if RANS is strengthened to dollars is doing well, or if it's weakened to dollars is doing badly because RANS is a random variable and the value of a dollar is also a random variable So South Africa do absolutely nothing wrong and its currency can weaken to the dollar and it can do nothing right and its Value can strengthen if the dollar weakens and why this is bad is because now Say the government makes a policy But something else happens in America and It shows a favorable increase compared to what we were expecting the government policy to do and it gets all terribly confusing so it's very difficult to predict which way exchange rates are going to go and That's why I mean we're gonna be doing fundamental share analysis in the next video But I kind of think that unless you have a really good understanding of government exchange rate policy Trying to make money in exchange rates or with forex is very risky and it's very speculative But your exchange rate policy Very difficult very very difficult and what's interesting is exchange rates Come and they play an important role with exports and imports The stronger your currency the cheaper is to import and the less likely other countries are going to want to engage in your exports So it does kind of mess that up a bit. I know China has got quite an aggressive You know exchange rate policy they want to keep their currency as low as possible So that they can export as much as possible So it is a it's an interesting thing exchange rate policies I mean we could do an entire video on that as well and then finally Let's look at something known as prices and income policy Prices and income Policies and this is where the government might say, okay, we're gonna have a wage ceiling or we're gonna have a minimum wage Or they try and make these interventions these laws around prices and incomes and I Mean anyone I think who studies economics and they do those little graphs They show that whenever the government intervenes here Though it's got a good policy. It's got good intentions. It's got devastating effects in the economy I mean one classic thing is setting a minimum wage So a minimum wage is set to Protect the the workers it's set so that Everybody gets a fair amount of money in order to live life standard of living all these type of things so minimum wage in theory is brilliant and I think it's very good because Corporations it stops corporations from exploiting their workforce and all these type of things So minimum wage has got a good intention behind it. However, it has the unfortunate consequence of You know increasing unemployment and Wide increases unemployment is because people now say well Before it costs say 200 rand an hour to employ someone to to do this job now it costs 300 rand Maybe if I'm only making 250 rand profit off of this at 300 rand it's not actually profitable for me to do it anymore and I'm rather just gonna walk away from this business arrangement And so productivity comes down people who might be prepared to work for 200 rand Cannot legally work for an wage less than the minimum wage So those people are unemployed Productivities decreased and it does have this undesirable effect. Does that mean we should scrap minimum wage? I don't think so. I don't I think minimum wage from a a social policy is is a very good thing. We do want to Prevent capitalists from exploiting the people But I feel we need to explore other ways of trying to get that rather than intervening in the economy or setting a rule or regulation of this nature How else we could do it, I mean you could do Public shaming on Facebook saying oh look at this company. They pay below this amount shame on them Or they exploited their workers and then maybe, you know throwing that whole reputation risk But there's some companies who are maybe too small to care about their reputation and people might not actually I don't know. It's it's very difficult. It's it's going into something else I Mean so yeah The government has got quite a big influence on the economy and especially what its mindset is what type of government party Cuz remember one yet might be one party another time There might be another party, you know, maybe a capsules party or a socialist party and then they'll have different rules different regulations Some are good for the people some are good for the markets and it does tend to fluctuate quite a lot I mean I can do another whole video on you know Cuz governments are very much involved in setting of the interest rates and interest rates Impact everything. I mean every single assets value Changes once you change the interest rates So that's got a massive effect and it is something that the government along with the central bank Have a lot of influence over But I think let's rather do another whole video on that or I'll come across that later in the course Once we've got a little bit more foundational Knowledge, but there we go. This is government and they've got monetary policy fiscal policy National debt management policy exchange rate policy and prices and income policy And There we go. That's the end of the video like I said next up is fundamental share analysis That should be quite a fun video So subscribe if you want to listen to that one as well that'll come up tomorrow. Cheers