Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Economy of Ireland (EC2020) Tutorial 3 – MT Term Teaching Week 5 Plan for today • Any issues/questions? • Question B1 parts (i), (ii) and (iii) – these questions are more philosophical in nature • (i) Are people the best judges of their own welfare and if not who else is? Who should be included in arriving at the aggregate welfare for Ireland: immigrants, the Irish abroad, future generations? • (ii) Comment critically on the links between GDP per capita and human welfare. • (iii) Examine critically the concept of competitiveness and why it matters so much for a small regional economy like Ireland’s, especially as we are now in the euro zone. B1 (i) • (i) Are people the best judges of their own welfare and if not who else is? Who should be included in arriving at the aggregate welfare for Ireland: immigrants, the Irish abroad, future generations? • NB: There are two parts to the question and you must answer both! • Also, try to have a coherent whole answer/story/argument across both parts B1 (i) • Are people the best judges of their own welfare? • That people are the best judges of their own welfare is an implicit assumption behind most of positive (value-free) economics. • The idea is that individuals know their own preferences (information) and, therefore, they should be allowed to make the choices that maximize their welfare. • A quick ‘Straw Poll’. B1 (i) • Unfortunately, it’s not a simple question, as there is no definitive answer that everyone can agree on. • So, we need to think about it and argue for a position. • Who might not be the best judge of their own welfare? • First, a simple example… B1 (i) B1 (i) • So, maybe not children, people with very severe disabilities … ? • How about everyone else? Do we think everybody else/most people are the best best judges of their own welfare? • We can think of people doing lots of ‘nutty’ things, however, that doesn’t mean they don’t know what’s welfare maximizing for them. • So, why might people not be the best judges of their own welfare? … It’s a more fundamental issue. • Question to think about: How are our preferences formed? B1 (i) • Our tastes/preferences are affected by: • Advertising • Peer pressure • Personal biases - - behavioral insights (e.g. myopic /short sighted behavior, inertia/status quo bias … see Economy of Ireland pages 117 & 118 for more examples). • Informational problems - - markets often under provide relevant information (market failures). B1 (i) • Wider Social Policy: even if we do accept people the best judges of their own welfare we have to take account of spillover effects - - e.g. negative externalities. • What can we/should we do about this? • We often regulate markets - - age restrictions on certain products, • We ban certain markets - - markets for organs • You can think of these regulations as appearing on a sliding scale from total autonomy to strong paternalism. Where on the scale would you position society? • Extra question to think about: who should we cede this control to - - i.e. if you are not the best judges of your own welfare, who is? The government? The Church? Corporations? … B1 (i) • A definition of the ‘well-being’ of Irish society • Key issue: who do we include in Irish society (or, should this be broader than just Irish?)? • Ws = F(Wi), where i = 1 to N • Wi = f (A, B, C, D) • where A is material welfare, B is leisure time, C non-material goods (friends, community etc.), D is non-private goods - d (things we all own and benefit from, like environment, nature, street lighting, etc.) • Note: each has an impact on well-being and they interact with each other B1 (ii) • (ii) Comment critically on the links between GDP per capita and human welfare. • Not a question about measurement!!!! Think of the impact GDP per capita can have on human welfare. • GDP per capita - an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production (OECD) … in a particular frame of time) • Human welfare = f (A,B,C,D) ? • What is the important policy objective? B1 (ii) • Some arguments for growth and how it can have a positive impact on human welfare: • Relationship between A,B,C,D: Strongly correlated with other components - A rising has an effect on B, C and D. Increasing A should increase well-being and all of the evidence shows that it does. • Begin unemployed has a strong effect on well-being - hence captured by A. • Facilitation of social change argument - it is politically easier to redistribute in a growing economy. But this doesn’t necessarily happen (See next slide) • Power (see the last column on the next slide) • Think of absurdity of the opposite - we should reduce growth! B1 (ii) B1 (ii) • Some arguments against focusing on growth due to a negative impact on human welfare: • Growth, not necessarily maximizing growth – intergenerational issues • Impact on D - - e.g. community life, environment, stretching resources • Growth attracts migrants and this can lead to societal and distributional issues (jobs/wages example) • Easterlin paradox: within a country, people with higher incomes are happier, but not across countries and time • http://www.iea.org.uk/sites/default/files/publications/files/upldbook 416pdf.pdf (page 16) B1 (iii) • (iii) Examine critically the concept of competitiveness and why it matters so much for a small regional economy like Ireland’s, especially as we are now in the euro zone. B1 (iii) • Two questions here: • Examine critically the concept of competitiveness • Why competitiveness matters so much for a small regional economy like Ireland’s B1 (iii) • Examine critically the concept of competitiveness • Narrow sense: • Prices out of line, relative to others • Broader sense: • Think of all the things that go into being competitive in any field: B1 (iii) • Examine critically the concept of competitiveness • The ‘right’ goods • High quality products • Selling at a competitive price • Having reliable supply • Marketing • Amount and type of human capital in the country • Infrastructure • Legal, tax, patents, transport… • High up the value-chain if you want to be a ‘rich’ country • E.g. apple products B1 (iii) • Why competitiveness matters so much for a small regional economy like Ireland’s • NB issue for a regional economy as a policy instrument • Regional economy prices taken over the long-term - importers of price • If prices & productivity rise together it’s not an issue • Deviations (short-run) can cause damage – prices get out of line: • With productive and less productive sectors wage pressure will raise costs and prices • Exchange rate and the amount of trade outside monetary system can impact prices B1 (iii) • When prices/costs rise relatively you lose competitiveness • i.e. exports more expensive and imports relatively cheaper (deficit) • Borrow to finance deficit – which will need to be repaid • With monetary policy you can devalue exchange rate for a sortterm solution • But, raises domestic prices and pay claims • Small economy & no Monetary Policy - can’t effect currency • Rising prices and pay claims mean export sales fall and imports rise • Lose export markets, growth and labor demand fall • Painful mean reversion/internal devaluation and repayment!!!