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Transcript
POLITICAL ECONOMY 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 “Z-variables”: geography, culture, etc. Political institutions & processes Economic structures & processes The Cycle of Political Economy (A). Interest: Sectoral Structure of Economy Income Distribution Age Distribution Trade Openness Elections: Electoral Law Voter Participation Government Formation: Factionalization Polarization (B). Representation Partisanship Policy Fiscal Policy Monetary Policy Institutional Adjustment Government Termination Replacement Risk (C). Outcomes: Unemployment Inflation Growth Sectoral Shift Debt Institutional Change Guaranteeing individual freedom & self-expression INDIVIDUALISM COLLECTIVISM “Good of society” & “common good” Government by the people exercised directly or through elected representatives DEMOCRACY TOTALITARIANISM One person or political party exercises absolute control over all spheres; opposing parties prohibited 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 Highly Mixed State-owned health-care, electrical, liquor Pure Market not planned by anyone, no restrictions Pure Command Market Mixed Command products, quantities, price are planned, most business state-owned State-Directed Government plays significant role in directing investment via “industrial policy” State-Directed 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 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 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) 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. Responding 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 Responding 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) 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 OUTCOMES DETERMINANTS Jobs Internal market forces External shocks Prices MACRO ECONOMY Growth Output Policy levers International balances Almond, 1991 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 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.