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Lecture

L10 - Comparative Political Economy
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Department
Political Science
Course
POL2104
Professor
Joseph Roman
Semester
Winter

Description
March 18, 2014 Comparative Political Economy 1. The development of the sub-discipline 2. Persistent features of capitalism 3. Key figures in political economy 4. Approaches to political economy What is Political Economy? • Political economy as a new discipline • Interdisciplinary • Economics originally interested in the effects that politics has on the allocation of resources • Economics now sees politics as interfering in perfect outcomes • For economists, the theory is always right because the actors always have it wrong • Political economy is ultimately interested in the intersection of states and markets What does Political Economy focus on? • Questions of power • The distribution of resources signal power relations among groups • Social class and how they relate to one another -social mobility is not as pervasive as one might think • Relations between employers and employees, producer groups, and the sexes • Economic complexity • The institutional arrangement of economies helps political economists understand the how economies operate in different contexts • The extra-economic basis of capitalism, i.e. those things which are not subject to commodification but are nonetheless integral to sustaining the reproduction of capitalism -sidewalks, parks, education, etc. • The social aspects of the marketplace for all economic systems are ultimately social systems • Social relationships are affected by the marketplace and its accompanying constraints • How states obtain resources from their economies -taxes • States need to tax income, profits, and consumption to carry out their day to day responsibilities -strong economies help develop stronger states (more resources) • Strong economies help states to rule effectively • What dilemmas do states face when they tax their economies? -Capitalism – the interests of business must be taken into consideration • Political economy and the contradictions of capitalism, e.g. productivity and competition Persistent Features of Capitalism • The term “capitalism” did not emerge until the middle of the 19 century • Capitalism as an inherently dynamic system • Change is endemic under capitalism, but it has regular features: 1. The business cycle 2. The growth imperative – if the economy doesn’t grow, it’s in trouble 3. Abstraction, i.e. measuring value 4. Uneven development – growth in any country is highly localized Key Figures of Political Economy I:Adam Smith • Smith was a philosopher, not an economist • Selective readings ofAdam Smith’s The Wealth of Nations • The invisible hand efficiently allocates resources within a society • The invisible hand is not about achieving an equilibrium for it is a metaphor for the interdependence that emerges from a division of labor, i.e. the butcher, the brewer, and the baker • People working in their own self-interest maximize revenue for themselves and others • Smith’s concept of “self-interest” refers to the desire to improve one’s own condition, not inherently selfish behavior to maximize benefits and minimize costs • Working in one’s own self-interest betters the community as everyone is dependent on each other to meet their needs • Smith’s vision of a market is idealistic • Markets are perfectly competitive and perfectly clearing • The capitalism of Smith’s time was one of small firms • Unfortunately, the invisible hand as equilibrium is what informs policymakers The Consequences of the Invisible Hand as Equilibrium • Informed policymaking circles into the 20 century • The notion of perfectly clearing markets led to frequent boom-busy cycles • Policymakers ignored Smith’s insistence that intervention in economies was needed • According to Smith, governments favored the big and powerful at the expense of the poor and weak Key Figures of Political Economy II: John Maynard Keynes “In the Long Run, We are All Dead”: Keynes’Legacy • The General Theory of Employment, Interest, and Money • How can we overcome boom-bust cycles? • Keynes was interested in arriving at perfectly clearing markets, thought he showed that there is no relationship between savings rates and investment • Boom-bust cycles need to be avoided Keynes’Policy Legacy • National economies ad terrains of action • Use fiscal policy to stimulate aggregate demand and, thus, ensure macroeconomic stability • Smooth waves rather than peaks and troughs in the business cycle • Counter-cyclical measures • During recessions, public works programs prime an economy through the multiplier effect, welfare state measures enable the unemployed to continue spending, and lower taxes on business • During boom times, government would pull back on public works programs, increase taxes, and because of lower rates of unemployment, fewer people would access welfare state measures • Monetary policy could be a counter-cyclical tool too • Inflation, however, was secondary to aggregate demand, but by no means was it of little concern to Keynesian policymakers • Aggregate demand had to be maintained in the end because recessions were caused by the common capitalist problem of overproduction and underconsumption Why Did the Keynesianism Fall Out of Favor? • Stagflation • Escalating inflation coupled with rising unemployment • 1973 oil crisis brought on byArab petroleum-exporting countries to punish Western countries for their support of Israel during the 1973 Yom Kippur War • 1979 oil crisis caused by the Iranian Revolution Figures in Political Economy III: F.A. von Hayek and Milton Friedman Understanding the Rise of Monetarism • Reaction to Keynesianism’s ineffectiveness in solving stagflation • Friedman was Hayek’s disciple • The problem in the economy is inflation • The price mechanis
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