2/19 Gov

Front 1

How can one describe collective action at the international level?

Back 1

ex. Asian financial crisis
- nobody stepped in on time to bail Thailand out, because everyone thought someone else would bail them out, and they could reap the benefits
- Japan and other countries bailed Thailand out, but too late, so investors pulled money out of the whole region, which required an even bigger bailout

Front 2

How can one describe collective action at the domestic level?

Back 2

- If individual benefit is small, and the amount of people who will benefit is large, then this problem becomes very difficult. Therefore, people contribute less of own resources, because they don't care if good isn't publicly provided --> they could just pay a little and get it anyway
--> pork barrel politics (how expensive sugar is)

Front 3

How can we understand economic cooperation under realism?

Back 3

- Hegemony: The United States and the post- World War II order: Situation emerged at the end of WWII because the U.S. was concerned for the economic health of Europe so they could protect themselves from foreign powers and domestic uprisings
- U.S. used their power to build these countries up. In return, the U.S. asked them to follow proposals to increase economic cooperations (lowering barriers). Relative gains do not matter so long as they are on the whole better --> U.S. strong armed them into free trade

Front 4

How can we understand free trade and economic cooperation under constructivism?

Back 4

Constructivists think in order to understand economic order, one must look at growing acceptance of Keynesianism, which said it was possible for states to reap benefits w/o suffering the worst costs, if government intervened somehow to smooth out any economic shocks coming from abroad.
- People began to think about trade differently, as less dangerous, and less based on material facts

Front 5

How can we understand free trade and economic cooperation under liberalism?

Back 5

- Institutions after WWII were specifically designed to facilitate economic cooperation (e.g. the IMF)
- The IMF's main function was to manage system of fixed exchange rates, and when those went away in the 70s, the IMFs main function was to ensure international stability in financial affairs by acting as the lender of last resort.

Front 6

How does the IMF work?

Back 6

All members of IMF contribute some money to the fund. The money you put in is relative to GDP. If you're in economic trouble, you can borrow money.
- Everyone benefits from the funds provided, and the collective action problem is solved, because only people who contribute can benefit

Front 7

What are some issues with the IMF?

Back 7

- Increasing capital flows, limited funds
- Up until the nineties, the IMF worked very well. But money is flowing across borders more quickly than the IMF can handle.
- The Collective Action problem comes back when the IMF spends more than it can have.

Front 8

What are the conditions of the IMF?

Back 8

- Requires countries to raise taxes, cut back social programs such as welfare, and lower gov't spending
- As a result of conditions being so difficult, countries wait until the last minute, when their economies are so bad, that the loans have to be bigger. And therefore, everyone is worse off.

Front 9

What is the Moral Hazard Problem?

Back 9

This problem occurs when someone buys insurance (IMF, in this case), and then takes bigger risks, because they know they're insured.
- Critics of the IMF say that the IMF is providing insurance to all countries in the developing world, and that means these countries may take riskier moves (too high interest rates, fixed interest rates promoting economic instability, etc.)

Front 10

How can we fix the IMF?

Back 10

- Deshkvore talks about how maybe we need some capital controls, which slow money flow, which is bad for investors and investees, but good for stability

Front 11

What is GATT?

Back 11

- The General Agreement on Trade and Tariffs
- It is an agreement between 24 countries to lower trade barriers existing between them. Didn't set out to abolish tariffs, but laid ground rules on how states could reduce barriers between trade

Front 12

What is the reciprocity principle under GATT?

Back 12

- No country should be expected to lower its barriers to tariffs on imports without gaining equal access to exports

Front 13

What is the most-favored nation (MFN) principle?

Back 13

No one gets any special treatment
- one exception is the formation of regional trade associations (e.g. EU)

Front 14

How can one interfere with trade under GATT?

Back 14

Through tariffs, rather than subsidizing exports or import quotas

Front 15

How does GATT do it? :)

Back 15

- Providing forum for repeated interactions: GATT didn't try to bring reduction of tariffs all at once, but thought that countries would reduce tariffs through a series over time
- Reduction of transaction costs: with the agreement of the basic principles of GATT, one didn't have to keep negotiating these principles. Just had to focus on lowering tariffs. Because of the MFN principle, one didn't have to repeatedly make individual negotiations with several different countries
- issue-linkage
- providing information: because GATT discouraged all interventions of trade except tariffs (the most easily visible/quantifiable) it made it easier for countries to figure out how much other countries are interfering w/trade

Front 16

How did GATT come into being?

Back 16

- Executive Agreement: Didn't require approval of Congress, who are more interested in domestic stuff
- Agricultural Exemption: the most powerful lobby succeed in getting an exception. We didn't have to reduce tariffs on agricultural goods

Front 17

What are some of the problems with GATT?

Back 17

- Lack of enforcement mechanism
- The problem of non-tariff barriers: doesn't solve the problem of protectionism, import quotas, safety restrictions that only domestic goods can meet

Front 18

What is the WTO?

Back 18

- The World Trade Organization: Made to solve the problems of the GATT
- Countries had to calculate value of non-tariff barriers and convert them into tariffs (tarrification)
- WTO had more power to enforce agreements

Front 19

Explain the Strife between EU and US over banana imports

Back 19

- EU favored imports from Africa over L. America
- So the U.S. took this issue to the WTO, who said the U.S. had the right to sanction the EU through Euro luxury good manufacturers, who sued the EU, saying the whol crisis was hurting their own business