Key Questions
What percent of your economic
well-being should be left up to you?
What entities should be considered
public goods (indivisible and
available for all equally)?
What is fair taxation?
How much should a company be
regulated?
How much should trade be
regulated?
Political Economy
How politics and economics
are related and how their
relationship shapes freedom
and equality.
Economic institutions are
not easily replaced.
This is a major battleground
between freedom and
equality.
Different political
ideologies as well as
different political attitudes
within a country have
diverse ideas on societal
goals.
This in turn affects the role
of economic institutions.
Components of political
economy
Markets and Property
Public Goods
Social Expenditures
Taxation
Money, inflation, and
unemployment
Regulation
Trade
Markets
The interaction between the forces
of supply and demand
Are closely related to the rise of
cities (sense of security)– the
bazaar; modern eBay (no fixed
prices)
Values become existent through
millions of interactions
Are spontaneous, with some
regulation
Minimum wage, prostitution, drugs
(but markets have a life of their
own)
Property
Ownership of goods and
services that are exchanged
• Land, businesses
Tangible and intangible
Property rights issues:
• Intellectual property
• Issues of theft (enforcement
of)
• States claim on property
(airwaves, airlines, oil, etc.)
Public Goods
Goods provided or secured
by the state
• Available for society and
indivisible
They generate collective
equality, but how much?
The extent to which they
are provided is based on
ideology
What should be the
relationship between the
state and market?
Social
Expenditures
The state’s provision of public
benefits
• Education, health care, defense,
etc. (welfare)
Does collective equality trump
individual freedom?
Aging population is a problem
Different social expenditures
benefit groups differently
• How do they actually favor the
middle to upper class?
Taxation
Critical tool for creating a
basic level of collective
equality
• Do you tax personal
wealth and income or
business and/or
transactions?
How to extract needed
funds without stunting
economic growth?
Money, Inflation,
Unemployment
Money is the means to secure
and stimulate economic
transactions
Money allowed for prices to
emerge based on a common
standard
A Central Bank?
Inflation – too much money
chasing too few goods; loss
of value
• Who gets hurt the most?
Regulation
States are also concerned
with the means by which
output is created
Moral and technical
issues
• Are there public bads?
• Whose rights are more
important?
Monopolies and Cartels
Trade
Can determine the
economic activity
within a country
through availability to
foreign goods.
Tariffs, quotas, and
non-tariff barriers
Comparative
advantage
Liberalism
The best state is a weak
one, constrained in its
autonomy and capacity
Markets and property
should be regulated as little
as possible
Encourages competition and
innovation and capitalism
States provide public goods
if critical
Liberalism
Free trade is promoted to
encourage global
competition
Taxation is kept to a
minimum ($ in the hands of
people and reinvested)
Under minimalist conditions,
economic growth is
maximized and people will
enjoy the greatest amount
of personal and political
freedom
Liberalism
The United States, the
United Kingdom,
Canada, etc., Chile, to
Estonia
But some countries that
restrict personal
freedoms – Singapore,
Hong Kong under China
Liberalism
Overall there is an
attempt to maintain low
levels of government
regulation, taxation, and
social expenditures and
to protect property
rights.
Social Democracy
Draws from Liberalism and
Communism
Accepts private property and
open markets, but rejects the
thought of violent revolution
Embraces democracy –
“economies are stronger when
societies are just.”
State is not a threat, but a
purveyor of social rights and
collective equality
Social Democracy
Higher level of social expenditures
made possible by higher taxes
Maybe state ownership of firms
Neocorporatism – policy making which
involves state, labor, and businesses
• Non-combative in theory
• Creates a number of associations
that represent a large segment of
business and labor
• Those associations are recognized
as legitimate
Social Democracy
Who? France, Germany,
Sweden, Denmark, etc.
Argument against this is
that this system is
inflexible – can’t fire or hire
easily; closing
nonproductive companies?
More autonomy and
capacity than liberal states
Communism
Free market and private
property cannot serve the
needs of society as a
whole
(power/exploitation)
The entire economy
becomes a public good
Taxation comes through
fixed prices and wages
Communism
Will so much power to the state
create authoritarianism?
Is there any distinction
between public and private?
Won’t it be inefficient?
“Isn’t it better that economic
resources may be wasted in an
attempt to provide for all than
squandered on luxuries for a
few?”
Mercantilism
No emphasis on the needs of
society, but the needs of the
state
Wealth = national power and
secures national sovereignty
Focus on the state’s power
internationally; imperialism
Active industrial policy guided by
the government through taxation
and subsidies
Strong tariffs to protect industry
China and Russia, maybe Japan
and South Korea
Mercantilism
Keep benefits low to encourage
self-reliance and higher public
savings
This capital can then be borrowed
by the state or business (!!!!!)
Would there be more nationalism
or patriotism?
Lower taxes and lower
expenditures
Central bank is important to keep
interest rates low to encourage
borrowing
How does one
compare economic
systems?
Crunch the numbers
• GDP
• Gini Index
• HDI
Gross Domestic
Product
Total market value of
all goods and
services produced
within a country over
a period of one year
Most common tool
used
Provides a basic
benchmark for per
capita income
Gross Domestic
Product
Faults of GDP
• Variance in regions - misleading
• Since it captures economic
transactions it can factor in
expenditures for a natural
disaster
• Doesn’t consider the costs of
economic growth (environment)
• Doesn’t address distribution
http://www.indexq.org
/economy/gdp.php
Purchasing-power
parity
Attempts to estimate
the buying power of
income in each
country by
comparing similar
costs (food, housing)
using prices in the
U.S. as a benchmark
https://www.cia.gov/libra
ry/publications/the-world-
factbook/rankorder/2004r
ank.html
Gini Index
Measures the amount of
economic inequality in a
society
Perfect equality = 0 and
perfect inequality = 100
U.S. = 41
Economic system doesn’t
matter much – China and
U.S. close
Japan and Sweden are
close and low
Gini Index
Trends
• Social democratic
countries are low
• Liberal countries can
be middle low to
middle
• Less developed
countries are high
https://www.cia.gov/libr
ary/publications/the-
world-
factbook/rankorder/217
2rank.html
Human Development
Index
Are people better off?
What is the overall
outcome of wealth?
Factors that include adult
literacy, life expectancy,
education enrollment, etc.
Does the wealth create a
standard of living?
http://hdr.undp.org/
en/data/trends/
Why doesn’t the United
States have a European-style
welfare state?
What specifically are the
differences between the two
systems as it pertains to
redistribution?