The article discusses the fundamental principles of macroeconomic policy. It traces the development of macroeconomic policy ideas, and, particularly, the transition cycle from adhering to strictly defined rules to free discretion and vice versa – back to restricting the freedom of implementation of macroeconomic policy instruments. The article analyses the advantages and disadvantages of discretion as compared to the management that follows strictly defined rules. The special focus is on Bulgarian practice and tradition. The article proves that throughout history Bulgaria’s governing elite has failed to take advantage of discretionary management and it has been rather the norm for the government to abuse (deliberately or not) the right to a greater management freedom. On the contrary, when macroeconomic management has had to adhere to specific imperative restrictions, positive results have prevailed. Bulgarian practice has confirmed the theoretical statement that the losses resulting from poor discretionary national macroeconomic policy are much greater than the benefits resulting from a well-defined policy, carried out consistently. The nature of and changes in monetary policy during the 1990s and the introduction of the currency board arrangement are a telling contemporary example of this statement. The recent policies of the governing elite have been focussed on fiscal policy, bringing about continuing attempts for large-scale economic experiments, in spite of the lack of clear estimation of the possible consequences. The article’s analysis outlines some suggestions and recommendations, which are based on the adherence to clearly defined rules in fiscal policies and focuses the efforts of the state on establishing and developing adequate market institutions.
This paper debates the foundations of the principles of macroeconomic policy. It traces through the development of the ideas forming the macroconomic policy and especially the cyclical transition from observance of firmly established rules to discretion and vice versa, to curbing freedom at formation of macroecnomic influences. Reasons are brought forward backing the advantages and disadvantages of discretion in comparison with the government based on strictly formulated rules. A special attention is given to the Bulgarian practices and tradition. A conclusion is drawn that the Bulgarian governing elite has not historically succeeded in taking advantage of the opportunities offered by the discretional government and as a rule has abused (consciously or unconsciously) the right of a greater governing freedom. On the contrary, when the macroeconomic government has had to observe concrete imperative restrictions the results have been predominantly positive. The Bulgarian practice confirms the theoretical result that the losses from badly conducted discretional macroeconomic policy on a national scale are much greater than the benefits from a possible well formulated and carried out policy. Resulting from the analysis, concrete suggestions are formulated, carrying the basic idea of abiding by clearly defined rules of fiscal policy and concentrating the efforts of the state on setting up and running relevant market institutions.
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