Problems with Capitalism
We learned this week from Stiglitz that capitalism is not always effective. He points out that other countries have to take into consideration their social, political, and institutions before they can can transition into a different system of doing things.
Some developing countries are damaged by the help of Western cultures. The price paid by developing countries are higher than the benefits: high unemployment, longer problems of social dissolution, urban violence and they ethnic conflicts in other parts of the world.
Stiglitz supports gradual globalization rather than shock therapy, because he says timing counts. "Timing and they sequencing are important." (Stiglitz p. 58) This alows time to set up the infratructure of banks, regulations, making new jobs, and entrepreneurship. Shock therapy moves quickly, and fail s to establish a good infrastructure and can have devasting effects on a country.
IMF (International Monetary Fund) does not always recommend the best financial advice and can give money to societies who do not need it. They are supposed to advise countrieson the strategies on globalizations but sometimes use  threats of withdrawing funds if the country they are working with do no do what they say. Dr. Gannon summed it up well "do what we say, not as we do."

Hypocritcal Countries

                On Monday we discussed how a new economy grows according to Ha-Joon Chang. One of these is to maximize resources and raw materials. One must limit their dependence on imports. They need a consistent currency. Markets need to be developed for goods. That way they can export and be in charge of the price. A social overhead capital is important. Infrastructure is needed for growth and modernization. There is a definite need to spend money and a government that supports the long term benefit of all of this. This all is definitely not laissez faire.

                Most importantly is protection. This brought about by tariffs. They protect the industries against outside competition. Tariffs are tax on imported goods. The purpose of these are to protect domestic industry and to produce revenue. An example of this is woolens (raw sweaters, etc.) The British had a thriving textile industry before the United States even became a nation. To buy a sweater in Great Britain, it would cost $5. In America it would cost $7.25. In order to keep domestic revenue up a tariff of 50% would be placed on Great Britain’s exports now making the sweater cost $7.50…more now so that Americans will buy the American product because it is cheaper.

                At this time tariffs were one of the most political and economic influences. Henry Clay called this the “American System.” The British wanted economic imperialism. That means no tariffs so that everyone would purchase British goods because they were cheaper. An example of this is as if our class wanted to play a football game, but we only have one football player. He then would have an unfair advantage in the game. Raising the price was a politically decisive issue, but they did help in protecting what Chang calls “Infant Industries.”

                Chang poses a question…Are the developed countries hypocrites? “Do as we say, not as we do.” To understand this, we looked at Neo-Liberalism. Neo-Liberalism is a liberal tradition based upon Adam Smith, Ricardo, Marshall, and most recently Hayek. This is arguing for laissez faire, a small government with minimal economic preference. Adam Smith adds the Invisible Hand to this. The government need to stay out of economics and the market with no social engineering. Neo-Liberalism is against the “welfare state.” Austerity comes along in times of crisis (what should the governments do?). They called this “belt tightening to the extreme.” There are forced cuts in spending and slashes all across the board. They will give only what you need to survive and nothing more (no student loans, etc.) This has now become orthodox.

                A good analogy of this is student loans. One needs student loans to go to school in order to get a better job. Suddenly student loans are no longer allowed, but the person in charge of this decision got to where he is because of the help of student loans. Developed countries are doing this to underdeveloped countries. Mexico needs corn because it is a staple in their diet. America puts ethanol into its gas. This then doubles the cost of corn in Mexico. Therefore Mexicans have to pay double just to have corn. NAFTA had been put in place. Mexican farmers are being destroyed because of American subsidies. Developed countries have become developed by “kicking away the ladder” so no one else can get as developed as they are.

Policies for Economic Development: Recap 4/3/14

"From the 18th Century onward, the industrial success of laissez-faire Britain provided the superiority of free-market and free-trade policies." - Ha Joon Chang.

       What is really being said there is that Great Britain was the front runner in the worlds economy at this point in time. Britain had its had in everything that had to do with trading across the world. They were able to play the role of the supreme world economic power and eventually bring everyone else into the new age of "Liberal economic order says Chang. Other countries were starting to see that their old ways of "mercantilist policies" were no longer as affective and were beginning to adopt or at least make modification in order to change into a freer economic system. This seemed to work for a while until things started to go wrong with the start of the World War I.

       According to Chang, "in response to the ensuing instability of the the world economic and political system, countries once again started to erect trade barriers." By doing this I feel that it further damaged trade relations after the war was over and it took a very long time to get back to the way things were just prior to the war. In another class, we learned that war is good for business but I feel that it may be good for your country specifically but not for the greater good for the whole world. War way help bring your economy back by producing war goods materials and other goods but if you have no one to trade with on a global scale, you could very easily fall right back into where you were before it all started. How do you feel about war production verses international trade? Does it help benefit international trade by opening new trading post with other countries that are supporting you or does it  overall hurt the whole world?

       After the conclusion of World War I and World War II, there was an agreement met that helped make a significant move in the right direction in trade liberalization through the early GATT (General Agreement on Trade and Tariff) talks.

Recap for 3/28

This past week we discussed capitalism in relation to the Great Depression and the idea of changing neoclassical economics through Keynesian influences. Up to this point, what was known as "American capitalism" was seen as almost a solid fact of life that shouldn't be tampered with. The hit the Great Depression put on the economy changed this perspective forever. People began to doubt the system they loved and knew. Times of hardship brought some to believe that unchecked capitalist systems would continuously bring times of depression and recession, damaging the working class and poor to a severe extent.

Before the Great Depression, there was the prosperous 20's. A time when everyone was raking in the big bucks and the U.S. economy was flourishing. This all came tumbling down in 1929 when the stock market crashed and the Great Depression began. The capitalist economy that Americans loved had failed them and their belief in the system was in the balance. Appleby explains that "the Depression had exposed two great weaknesses of capitalism: its wayward oscillations between good and bad times and the vastly unequal distribution of wealth it produced" (291).  According to her claim, capitalism fluctuates between good and bad times often and the unequal distribution of wealth was causing issues with the working classes.

American leaders knew a change had to be made to capitalism in order to avoid another disaster and central planning wasn't the answer so Keynesian ideals were adopted and more government involvement over the market was introduced. Neoclassical economics had failed the American public so changes weren't the worst idea, but some were weary to a new version of capitalism.

I think it's interesting that that capitalism of the early 1900's doesn't really exist anymore because the Depression caused people to reflect upon the pros and cons of capitalism and decide what changes were necessary. This reminds me of the financial crisis of 2008. Unchecked bank and financial business practices took a wrong turn and had the potential to cripple the economy on an international scale. Global leaders and economists reflected upon the situation and current state of capitalism and had to make decisions on government involvement and the good for all. I think we're still trying to figure out how to best organize our economy. What are your thoughts on the relation between the Depression and crisis of 2008? Do you think adjustments still need to be made in order to further avoid catastrophes that capitalism may cause (according to Appleby)?

Excellent article on income inequality and global capitalist trends

You should read this piece, which discusses a new book by Piketty (a French economist) that argues 21st century capitalism is where the system's central contradiction is becoming more and more evident, leading to staggering income inequality. Some of his argues echo ones we've encountered in class. Can any of you identify some connections?

http://m.newyorker.com/online/blogs/johncassidy/2014/03/piketty-looks-at-inequality-in-six-charts.html?utm_source=dlvr.it&utm_medium=twitter

Neoclassical Economics isn't working!

In class this week we focused on why neoclassical economics wasn’t working. It is an economic system based on exchanges. People exchange labor for wages then that money is exchanged to buy commodities. It also preached the individuals wants to maximizing profits. The idea of individualism asks many questions. Individual liberty creates the betterment for individuals but is it better everyone? When people make choices that help them become wealthy does it help the betterment of others?  For neoclassical economics to work everyone involved would need to be a rational economic actor. As Dr. Gannon asked us in class most of the time people don’t know what to do with their money. It is because we cannot predict the future. If we could predict the future then we would all make the best economic choices and be well off financially. These theories are always good on paper but do not make sense in real life. When questions about the 2008 crisis were not able to be answered by neoclassical economist the tides seemed to be turning to a Paradigm shift.

March 7 recap on challenging Neoclassical Economics

The readings for Friday offer us the author's critique on Neoclassical Economics. The author describe several guiding and mathematical principles used in Neoclassical thinking as well as a few of the shakier concepts that it is based on. In short, consumers will always seek to get the highest utility within their means, and entrepreneurs will always seek the greatest profit. According to Neoclassical Economics as long as consumers and entrepreneurs fulfill their duties in this regard social welfare will benefit. It is postulated that their is a 'bliss point' or a Pareto Optimum in which once all labor and capital is harnessed for maximum efficiency individuals living standards will be as good as they can get.

As our authors point out, Neoclassical economists take it for granted the a free market capitalist society will always work toward this 'bliss point' for granted, and that if you consider other possibilities it doesn't hold up based on the mathematical principles they've put forward. His other critique is on the methodology used in Neoclassical microeconomics which take individual human choices as being constant and uniform. Using Hedonist psychology, it is assumed that all goods have the same worth to everyone, and that all human behavior is based on maximizing utility based on that. The way that society reaches the bliss point is through 'Pareto improvements' which are changes that increase the welfare of some or all without decreasing the welfare of anyone.

Why do you think, as our author claims, that Neoclassical economics the most prevalent school of economic thought today? If we say that the bliss point is just an arrow with Neoclassical Economics being the bulls eye painted around it is there anything that could be realistically substituted that would allow these theories to still hold true?