POLITICAL ECONOMY. Measurement Gross national income Purchasing power parity Human development...
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Transcript of POLITICAL ECONOMY. Measurement Gross national income Purchasing power parity Human development...
POLITICAL ECONOMYPOLITICAL ECONOMY
Economic Development Measurement
Gross national income Purchasing power parity Human development index
Political economy Political system: freedom Economic system: market Legal system: property rights
Steps in economic transformation Deregulation Privatization Improve legal system
Geography and education Coastal vs. landlocked Temperate vs. tropical Local physical geography Education & productivity
Politics and the Economy
“Z-variables”: geography, culture,
etc.
Political institutions& processes
Economic structures& processes
The Cycle of Political EconomyThe Cycle of Political Economy
(B). RepresentationPartisanship
Elections:Electoral LawVoter Participation
Government Formation:FactionalizationPolarization
(A). Interest:Sectoral Structure of
EconomyIncome DistributionAge DistributionTrade Openness
PolicyFiscal PolicyMonetary PolicyInstitutional Adjustment
Government TerminationReplacement Risk
(C). Outcomes:UnemploymentInflationGrowthSectoral ShiftDebtInstitutional Change
Political Systems
INDIVIDUALISM
TOTALITARIANISM
Guaranteeing individual freedom
& self-expression
“Good of society” & “common good”
DEMOCRACY
COLLECTIVISM
Government by the people exercised directly or through elected representatives
One person or political party exercises absolute control over all spheres; opposing parties prohibited
Economically-Relevant Characteristics Economically-Relevant Characteristics of Religious/Spiritual Philosophiesof Religious/Spiritual Philosophies
Protestant Christianity: Work ethic, wealth creation, individual freedom
Islamic fundamentalism: Pro free enterprise, right to private property, keep contractual obligations, avoid deception, sin to collect interest
Hinduism: Spiritual progression (reincarnation), aesthetic (non-material) lifestyle, self-reliance, caste system
Buddhism: Spiritual achievement but lack of support for extreme aesthetic behavior or caste system
Confucianism: High moral/ethical conduct, loyalty, reciprocal obligations, honesty
Economic SystemsEconomic Systems
Market
State-Directed
Mixed
Command
State-Directed Government plays significant role in directing investment via “industrial
policy”
Pure Market
not planned by anyone, no restrictions
Pure Command
products, quantities, price are planned,
most business state-owned
Highly Mixed State-owned health-care, electrical, liquor
Political-Economical Progress
Trend from totalitarian, command toward democratic, free-market systems
Innovation is engine of growth for products, processes, strategies, organizations, management practices, countries
Innovation needs: creativity market economy strong property rights the “right” political system
Economic progress is related to democracy It limits government’s ability to control citizen
access
Keynesian MacroeconomicsKeynesian Macroeconomics Focus on managing short-run fluctuations Focus on “demand side” by manipulating
independent variables such as government spending & taxes
If people demand a product, producers will supply it, hence getting money into people’s hands will rise production
Spending increases more effective than tax cuts: All of spending is consumption but some of tax cuts will be saved by taxpayers instead of being used for consumption
MonetarismMonetarism
Interest rates and money supply affect people’s willingness to buy at a given price
Shift demand curve by manipulating interest rates or money supply (Interest rates actually easier to manipulate! “We don’t know what money is anymore.”)
Increase interest rates (reduce money supply) to cut inflation at expense of increasing unemployment (induce a recession to prevent stagflation). Key is to alter expectations of future inflation.
Cut interest rates to lower unemployment at expense of increasing inflation (economic stimulus)
Supply-side EconomicsSupply-side Economics
Adverse shift in supply curve means BOTH higher prices (inflation) AND lower output (recession and unemployment)
Demand-side shifts cannot simultaneously boost production and lower inflation
Solution: shift supply curve by altering ability and willingness of firms to produce at a given price point
Policy levers: corporate tax cuts, deregulation, increased labor supply (immigration), lower tariffs on raw materials, education and training (increases in per-worker productivity) etc.
Comparison: Keynes, Comparison: Keynes, Monetarists, & Supply-sidersMonetarists, & Supply-siders
Responding to recessionResponding to recession
Theory Recommendations
Keynesian Increase spending & cut taxes to stimulate demand
Monetarism Wait it out, since stimulus would increase inflation
Supply-Side De-regulate, cut taxes on business, increase incentives to produce
Comparison: Keynes, Comparison: Keynes, Monetarists, & Supply-sidersMonetarists, & Supply-siders
Responding to inflationResponding to inflation
Theory Recommendations
Keynesian Cut spending & increase to reduce demand
Monetarism Tighten money supply & convince public it will remain tight
Supply-Side De-regulate, cut taxes on business, increase incentives to produce and save (Inflation = too much money, not enough goods)
SummarySummary
Economics has become political: Few classical economists around anymore, and they don’t get to stay in office!
Political choices (fiscal policy, monetary policy, trade policy, immigration policy, etc) affect economic outcomes
Political Business Cycle: Tendency to stimulate economy before election at expense of slowdown/recession after election
The Macro Political Economy
DETERMINANTSOUTCOMES
MACROECONOMY
Policy levers
Internal marketforces
External shocks
Output
Jobs
Prices
Growth
Internationalbalances
““Capitalism and Democracy”Capitalism and Democracy”
Almond presents four controversial viewpoints on the relationship between capitalism and democracy and concludes that democracy and capitalism both support and subvert each other through their very nature. Democratic capitalism through the welfare state seems to encourage its survival and often even enhancement through these institutions.
1. Capitalism supports democracy Modern democracy exists primarily in economically privately
owned institutions
2. Capitalism subverts democracy Too much ownership is placed in a select few, and
democracies will no longer function as it was intended. Marxism argues that capitalism in its very nature subverted
democracy by creating a somewhat bourgeois democracy rather than a system of equality.
Almond, 1991
““Capitalism and Democracy”Capitalism and Democracy”
3. Democracy subverts capitalism A democracy that accepts the welfare state will be the
real threat to the relationship between democracy and capitalism.
The encroachment on the private sector has been slowly changing our free democracy into a completely chaotic mess.
The formation of dense networks which comes about through capitalism seems to subvert the very idea of democracy.
4. Democracy fosters capitalism Capitalism could hardly survive without any sort of
welfare state.
Almond, 1991