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82 Cards in this Set
- Front
- Back
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Classical Liberals
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-Adam Smith
-Markets are natural -Laissez faire economics -Deregulate the economy, embrace free trade |
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Institutionalists
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-Douglas North
-In a laissez faire economy institutionalism is inherent. |
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Transaction Cost
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-Anything that makes a transaction costly
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Information Costs
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The cost of obtaining information about a firm or product
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Enforcement cost
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The cost of enforcing and maintaining contracts
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Developmental State
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-Charles Johnson
-States are actively managing economic development -Shift industrial sector to higher added value production |
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The Great Recession
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-Began with the Lehamn Brothers on Sep 15, 2008.
-Dow Jones drops 4.4% |
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Sub Prime Loans
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Loans that are risky
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Securitization
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Pool the loans, split them into shares, sell them to investors
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The Crisis of (the great recession)
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Real estate prices plummet
-Banks stop issuing loans -Banks are bailed out because they are "to big to fail" |
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Classical Liberals
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-Adam Smith
-Markets are natural -Laissez faire economics -Deregulate the economy, embrace free trade |
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Institutionalists
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-Douglas North
-In a laissez faire economy institutionalism is inherent. |
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Transaction Cost
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-Anything that makes a transaction costly
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Information Costs
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The cost of obtaining information about a firm or product
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Enforcement cost
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The cost of enforcing and maintaining contracts
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Developmental State
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-Charles Johnson
-States are actively managing economic development -Shift industrial sector to higher added value production |
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The Great Recession
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-Began with the Lehamn Brothers on Sep 15, 2008.
-Dow Jones drops 4.4% |
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Sub Prime Loans
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Loans that are risky
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Securitization
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Pool the loans, split them into shares, sell them to investors
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The Crisis of (the great recession)
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Real estate prices plummet
-Banks stop issuing loans -Banks are bailed out because they are "to big to fail" |
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What did governments do after the recession?
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-Most big governments implemented stimulus packages
-International financial institutions are strengthened |
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What did we learn? (Ravenhill)
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-Gov's do not know the business cycle
-Unregulated markets will not constantly generate optimal outcomes -Shows the interdependence of world economy -Shows that gov and business need to work together |
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Era of Mercantilism
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-Late 15th century
-European expansionism in order to acquire trade materials and access to raw goods. -Use new trade materials to increase military power. |
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Where does the industrial revolution begin?
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-Great Britain
-1820 through 1914 -tenfold increase in world exports -Huge increase in immigration (26 Million) |
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Gold Standard
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-Each countries currency has a fixed exchange rate in relation to gold
-Began in England in 1821 -This takes away exchange rate risk |
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Hawley Smoot Tariff of 1930
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-In lieu of the great depression the USA raises tariffs to stimulate the economy
-Because of this every other country raises tariffs and world trade declines |
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Embedded Liberalism
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-Begins after WWII
-Provides social welfare at home while opening up the economy to trade and investment |
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Bretton Woods System
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-established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century.
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Post World War Period
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-High rates of economic growth
-Growing gap between the rich and por -Some states close the gap -Increasing importance of Transnational Corporations (account for 10% of worlds GDP) |
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GrossDomesticProduct
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Total amount of goods and services produced within a country during a given period of time. Usually 1 year.
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GDP per capita
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GDP divided by population
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International Political Economy
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-The study of the interrelationship between public and private power in the allocation of scarce resources
-The study of goods, people, and services between states -The study of the distribution of power in the world economy, and the potential for states to engage in collaboration |
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Adam Smith
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-Beleived in a free market laissez faire economy
-Believed division of labor increases worker productivity |
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Adam Smith: Sources of division of labor
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-Specialization
-Civilized life: we depend on people for many things -Human Nature: People like to barter, produce and trade for themselves -People have want to better themselves |
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Smith: Promoting aggregate interests
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-People pursue their own interests but in doing so also promote the interests of the society.
-Invisible Hand -Regulators can not have wisdom or knowledge to manage the economy. |
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Smith: International Economic Policy
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-Free trade
-Comparative Advantage will benefit societies |
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Milton Friedman Key Ideas
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-Individual Freedom is key
-Limited role of government for economic effiecency and political freedom - |
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Friedman: Role of Gov't
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~Rule of law
~Break up (some) monopolies ~Deal with externalities ~Provide some regulation on paternalistic groups |
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Friedman: US government actions that can't be justified
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Agricultural tariffs, subsidied, rent control, minimum wage, social security, FCC control of the media
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Criticism of Friedman
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-There are many instances where government interference has been good.
-"dont ask what your country can do for you..." friedman believed your country should serve you |
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Karl Polanyi: Key Ideas
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-Expansion of government requires expansion of government to regulate
-Welfare complements rather than hinders capitalism -Markets are not natural, they are constructed |
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Karl Polanyi: Markets and society
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-Expansion of markets disrupts the social fabric
-Social norms may conflict with market demands -People and land are commodified |
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Commodity
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-Something that is created with the purpose of being sold in the market
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Karl Polanyi: Markets not Natural
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-Markets are one of the many actions through which economic activity can be organized
-Markets have only recently become dominant among these mechanism |
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Karl Polanyi: Enclosures
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-16th and 17th century England
-No private property rights until the king established them. -Pro: Increases agricultural productivity because the land is now "Theirs" -Con: Social Disruption |
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Industrial Revolution (England)
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-Growth of manufacturing sector
-Gains: Higher Productivity -Losses: Social Disruptions (Child Labor, unsafe working conditions, creation of slums) |
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Blocked Exchanges
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Exchanges that are blocked from being made because they conflict with social norms (Prostitution, the sale of rugs)
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Criticism of Karl Polanyi
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-Regulation and redistribution are inefficient
-Overly ideal description of pre modern society |
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Douglas North Key Ideas
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-Information costs two types:
~Information ~Enforcement -Institutions are key to reducing these costs |
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Information Costs
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-Where to find buyers/ sellers
-How to evaluate cost of a good -How to determine the wage to pay a worker (productivity, set wage) |
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Enforcement Costs
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-In the case that a person does not abide by the rules of a transaction there will be something there to...
-Measure damages, enforce penalties, and compensate the afflicted party -Property rights underlie transactions |
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Institutions
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Rules of the game
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Formal Institutions
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Laws, the firms, the court, constitution, etc...
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Informal Institutions
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Social Norms, sympathetic and unsympathetic defendants
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Role of Institutions
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-Establish and defend property rights, reduce information problems
-North: Institutions arise because they are efficient |
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North: Role of the State
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-The state maximizes the income of the ruler and his group
-Nonvoluntary or insufficient forms of organization will survive if they facilitate the rulers survival -The ruler will also provide institutions that lower transaction costs (Property rights, weights and measures, etc...) |
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North: Division of labor and regulation
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Specialization increases the number of steps in a production process which increases transaction costs and leads to a larger role for insitutions
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Criticism of North
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-This is a functionalist arguement
-There are now technological solutions to information problems... which calls for the need of less institutions |
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Alexander Gerschenkron: Key Claims
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-The timing of industrialization determines its nature
-Early developers: Laissez faire -Late developers: larger role of the sate in government, particular emphasis on heavy industry and large scale enterprises |
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Gerschenkron: Advantages of Backwardness
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-There is a backlog of technological innovation
-It is easier to apply information than to invent it |
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Convergence Theory
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The idea that poor states will catch up to rich states because of the already known knowledge
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Gerschenkron: Why more state in late developers?
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-Late developers want to develop quickly
-They face obstacles like: Lack of capital, culture of distrust, incompetence and corruption -State can raise funds for this |
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Gershcnenkron: Authoritarianism
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-Authoritarian states may be better positioned to carry out a rapid industrialization drive
-Populace must sacrifice consumption now to increase investment |
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Gerschenkron
(Democracy and Development Evidence) |
-Strong correlation between GDP per capita and democracy
-Empirical studies on democracy and GDP per capita growth show that democracy has no effect on GDP per capita |
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Gerschenkron: Cross National Comparison
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England industrialized in the early 1850's and they are laissez faire
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Gersh: Empirics Russia
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-State led efforts to catch the west
-Peter the Great moved the capital to St. Petersburg -Expanded Russian fleet |
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Gersh: Soviet Union
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-Authoritarian rule
-Collectivization of agriculture to pay for industrialization -Ideological justification: prosperity tomorrow, we need to respond to the threat of external aggression |
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Is there a uniform path toward economic development?
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Rostow: Yes
Gersh: No, depends on timing Landes: No, Depends on culture |
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Criticism of Rostow
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-One path to development?
-Complementary nature of political, economic , and social systems |
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Criticism of Gerschenkron
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-Authoritarianism and development?
-Deregualtion and growth? -Ex: China, India, and Hong kong |
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Criticism of Landes
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-Does culture really lead to growth?
~People use confucian values to explain both Chinas economic misfortune and also its fortune |
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Chalmers Johnson
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-developmental state is the key
-Mixture of liss and gersh arguements |
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Developmental State
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A state government that makes strategic economic policy choices
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Industrial Policies
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the state decides which industrize to support and prioritize
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Japans Economic Miracle
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-Japan lacks resources
-Destroyed in WWII -Between 1946-1976 their economy increases 55 fold |
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Japans Developmental State
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-Influential Bureaucracy
-Extensive influence over policy process -High control over economy and private business |
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Mechanism of Influence (MITI)
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-Government does not give direct orders to business
-Instead "Responsive dependence" makes cheap credit available to them -If the business goes in the direction MITI wishes then they have federal aid available to them. |
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Preconditions and causes of Dev state
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-Johnson: national consensus regarding promotion of economic growth
-Isolated and prestigious democracy -Late developer |
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Why developmental state leads to economic efficiency?
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-Corporations need protection and are reluctant to shift to new industries
-Bureaucracy picks out industries of the future and can shift economy in that direction -Bureaucracy internalizes national level interests to these companies. -Ex: promote "Made in Japan" as a product and it makes everything look better. |
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Alternative explanations for Jap growth: Culture
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-unique capacity for cooperation
-Other countries have done the same thing (Hong Kong, Taiwan, etc...) |
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Alternative Explanations for Jap growth: No Miracle
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-Growth was a normal outgrowth of market forces
-fails to explain 40% of japans productivity growth |
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Alternative Explanations for Jap growth: Japans Special Institutions
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- Lifetime employment system, seniority wage system, and enterprise unionism explain for much of the growth
-Special institutions were used before Japan |
