PLCY 110 UNC Sullivan MIDTERM

State

· A (more or less) permanent population

· A (relatively) defined territory (political boarders)

· A central government capable of maintaining (reasonably) effective control over its territory and conducting foreign relations

· No such thing as complete control. States exist on a spectrum from anarchy to strong state

· A monopoly on legitimate violence

· Recognition by other (powerful) states

· Anarchy is having little control over boarders, land, and people.

Nation

· A social collective whose members share a sense of common identity, a geographical location, and a political base.

· EX: history, language, ethnic/social origins, religion

· State and nation can overlap

Autarky

When a country tries to manufacture, grow, and produce everything they want to consume domestically.

Economic independence or self-sufficiency

Free trade

System where the state makes no attempt to control imports, exports, or manufacturing. It's free of taxes, restrictions, and quotas.

Autarky to free trade...

Autarky to free trade acts as a continuum and all countries fall in between as both extremes are impossible today.

Socialism

A social and economic system in which the means of production are collectively owned, and equal allocation of resources is given a high priority.

Capitalism (free-market economy)

A social and economic system in which the means of production are privately owned and operated and in which resource allocation us determined by supply and demand.

Means of production under capitalism (Examples)

Capital, labor, land, and natural resources

Democracy

A form of government in which all adult citizens can elect representatives to determine which laws by which their society is run.

- Free, fair, competitive elections

- Separation of power

- Protection of civil liberties (speech assembly, etc...)

Autocracy

A form of government that holds power and makes policies without the consent of the people that it rules.

Economic liberalism (vs. political liberalism)

Economic

· Unregulated flow of goods, services, capital, and labor

· Private ownership

· Minimal government regulation

· Minimal government spending

Political

· Government has an active role in promoting social justice, political equality, and economic prosperity

· Labor laws, environmental regulations, laws against discrimination

· Public good provisions

Scale of trade has increased because...

1. Multinational corporations have global reach and increasing power.

2. Travel and shipping are cheap and safe.

3. Governments have decreased tariffs and regulations on international trade.

Opportunity Cost

The highest valued alternative that must be given up to engage in an activity

Barriers to trade

various government policies that discourage importing goods from foreign countries

Tariffs

a tax charge on a good charged to consumers in the country (Americans paying more for Chinese electric cars for example)

Quotas

Only allowing a set number of a good to be imported. Supply ↓ Cost ↑

Subsidies

Tax breaks, credits, or grants sent to companies to incentivize production

Regulation

protecting things like labor/land rights for instance.

Race to the bottom

a dynamic in which states compete to attract business by lowering taxes and regulations, often to workers' detriment

Comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

Sweatshop

A shop/factory that violates two or more labor laws. This includes working conditions, wages, benefits, and child labor. The DOL estimates 22,000 garment shops in the US are sweatshops.

Anti-Globalization Position

· Loss of jobs to foreign competition

· Loss of jobs to outsourcing

· Environmental degradation

· "Race to the bottom"

· Increasing inequality (like disadvantaging poor countries or winners and losers in a country for "lower skilled labor" and stockholders win)

Economists agree on the "aggregate efficiency" gains from free trade:

More stuff at higher quality at a lower price is good

· Economy produces more with same resources

· Consumers will have more choices

Trade liberalization

The process of reducing barriers to trade

Trade liberalization reallocates capital, labor and land to more efficient use.

Unemployment has no correlation with trade liberalization.

Effects of lowering trade barriers on shoes. Barriers to imports almost always = net loss because:

1. Lower priced, greater variety of shoes

2. Reduced demand for US made shoes

3. Reduced production, lower wages, layoffs, closures

4. Consumers (US & abroad) have more money to spend on other products

5. Increased demand for other products

6. Increased production, higher wages, hiring, new businesses

Consumer losses > producer gains, leads to

Consumer losses > producer gains

- Higher prices

- Less choice

Opportunity costs of inefficient (uncompetitive) firms staying in business

Outsourcing/Offshoring Steel

NOT THE WHOLE STORY

· We don't have to spend as much on resources to build things.

· Jobs are created by having a cheap resource.

· Chinese subsidizing our steel through their taxes makes us benefit.

· Chinese economy doesn't outright dictate our economy.

Lump of Labor fallacy

the notion that there is a fixed number of jobs and that unemployed individuals can find jobs only when others lose their jobs or reduce the number of hours they work

Compensation Principle

Redistributing gains from winners to losers to account for losses from economic change.

The idea we need inequality to fuel the economy isn't true.

Protectionism

Trade isn't a zero-sum game. You don't win when exporting and lose when importing.

· Loss of jobs to foreign competition

· Loss of jobs to outsourcing

Share of population living in extreme poverty

· World (today): about 10%

· Sub-Saharan Africa (today): about 40%

· Has gone down drastically over the past few decades. World is "bad rn" but more live better.

· Most of Africa lives on less than $3.20 a day.

Extreme poverty

Living below the international poverty line of $1.90 a day.

Poverty Gap

Amount of money it would take to raise everyone to the international poverty line.

Explanations for persistent poverty

· Poverty trap

· Pop growth

· Physical geography

· Cult barriers/social divisions

· Bad governing

· Violent conflict

Paths to household income growth

· Saving/investing - putting money aside for (education, resources, etc)

· Trade - can specialize in something you're good at

· Technology - Making work more efficient (less labor/input for more outcome)

· Resource boom - Receiving something from an outside source (inheritance for ex)

Who does protectionism hurt?

international producers and domestic consumers

Acute hunger (famine)

Short term crisis usually caused from armed conflict or natural disaster. People are at risk of starving to death. Affects children, elderly, and those with chronic diseases.

Chronic undernutrition

If your every day food consumption is insufficient to provide the amount of nutrients for a normal active healthy life. Leads to fatigue, illness, etc. and is more ongoing.

A type of malnutrition where there can be either over or under consumption of certain nutrients.

Malnutrition

Not getting enough of certain nutrients because the food being consumed isn't nutritious enough.

The malnutrition trap

· Undernutrition = more illness, lower productivity, stunted growth/brain development, and premature death.

· More die every week from undernutrition than were killed instantly frim the atomic bombs dropped in Japan.

· Causes 45% of deaths in children under 5 (3.1 million children each year)

· We have more than enough food for everyone in the world.

· Man-made conflict is the #1 cause for hunger on the planet.

· Food is almost always available for those who can afford it.

Puzzle: many of the poor don't seem to want more food even though more and better food (especially for children) would increase potential for success. When these families get more money, they don't buy more food. Why?

Time inconsistency:

When you value current self more than future self.

Lack of information & difficult to learn from experience:

Hard to learn because your body doesn't feel hungrier when malnourished.

Protein/Energy malnutrition vs. micronutrient malnutrition:

Getting enough calories but not enough nutrients (vitamins & minerals)

Do high birth rates create a poverty trap?

- Poor countries have high fertility rates and rich countries have low population growth rate

- Resources divided among more people

- Young kids can't earn their keep

- Negative effect on health of the mother

Poverty <----> Family Size (Contribution to why women have more children)

- Economic consideration (male children growing to help support the family)

- Social norms (women living with husband and women contributing through birth)

- Family dynamics (Big emphasis on family and women pressured to have children)

Does decreasing poor child mortality lead to overpopulation?

- Population grows fastest where child mortality is highest.

- In most wealthy countries they have enough children to replace parents stopping population growth

- Saving lives of poor children leads to fewer children

- The longer we delay helping poor children the larger world population will grow.

- High mortality leads to more children because families don't know how many will survive.

Supply-wallahs vs. Demand-wallahs

Supply: The problem is a lack of supply, and the answer is to increase supply

- Increase contraceptives and ways from getting pregnant

Demand: The problem is a lack of demand, and the answer is to increase demand

- There is no demand for contraception so even if there is enough, they're not used

Wealth of regions

- Access to water increases wealth

- Tropical, highland, and dessert climates decrease wealth

- Temperate climates increase wealth

Tropical Vs. Temperate

- Temperate zones colonized tropical zones and there's lasting damage

- Tropical zones have many diseases and parasites

Biggest costs from geography

- Agricultural productivity

- Disease

- Transportation costs

Public goods

Goods that are neither excludable nor rival in consumption (Air, water, roads)

Free riders

those who enjoy the benefits of collective goods but did not participate in acquiring them

Externalities

A side effect of an action that affects a third party other than the buyer or seller.

Winning coalition

includes those people whose support is necessary for the leader to stay in power

public goods dilemma

Everyone benefits including free riders. No one wants to pay and private businesses have no incentive to provide.

Why do governments fail to provide these goods?

· Lack of revenue

· Only need support from winning coalition

· Governments want to provide non-rival public goods because resources are limited, and you need the most people happy to get in office

· There isn't incentive for the government to help the poor

Selectorate

in non-democratic regimes, a subset of the population that chooses and removes the leader or leaders

Selectorate Theory

Theory of leaders' incentives that focuses on incentives to reward their core supporters versus providing public goods for the country as a whole.

Coping Strategies --> Poverty trap

· Having more kids (quantity/quality trade off and mothers health)

· Won't try risky things like new crop, new seed, new type of work, etc.

· If you have cushion you can try new things but without safety nets people are stuck

· Relying on the community when something bad happens, pulls everyone down

Moral Hazard

When the act of insuring an event increases the likelihood that the event will happen (increase in risky behavior)

Time Inconsistency

When we change our minds about what we want simply because of the timing of the decision. Why people may not buy insurance. Rather spend money on immediate help rather than planning for the worst-case scenario.

Conflict Trap

Low GDP pc --> Slow growth --> Violent conflict --> Social efforts... (Repeat)

· Damages education, jobs, etc.

· Trap part: growth in economy plus struggling people make armed conflict look appealing

· Conflict with the government is common

· These groups may provide protection and some resources

· Opportunity costs are low so more will join

Cultural barriers/ Social divisions

Marginalization --> Poverty --> Lack of economic growth

· Afghanistan: women shut out of society (school, work, being in public without a male)

· Abuse, brutality, effects entire society.

· Need people learning, growing, and getting better skills.

· Want population that's able to spend money

· High famine and hunger, hard to escape when half the population is excluded

· Crime increases leading to higher administration costs for police, prisons, etc.

S-shaped curve

Simple biological mechanisms create this curve where income today is worth more than income tomorrow. People need food and resources to survive and until they meet a basic level of income they can't save or invest.

Poverty Trap

Poor countries stay poor because they're hot, infertile, disease filled, and often landlocked; this makes it hard for them to be productive without initial large investments to help with these endemic problems.

The three I's

Ideology, ignorance, and inertia are on the part of the expert, the aid worker, or the local policy maker, often explain why policies fail and why aid doesn't have its intended effect.

How can malnutrition create a poverty trap?

A lack of enough nutrition stops people from being able to work. All their money goes into just keeping themselves alive. Creates an S-Shape curve.

5 Key lessons from Banerjee and Duflo:

1. People lack education. (Using too much fertilizer or not using birth control).

2. Too much responsibility (Not being able to invest, save using banks, no safe water, and enough food. Unable to specialize.)

3. Lack of markets & unfavorable markets. (negative saving rates, high loan rates, no health insurance market either.)

4. Policy makers underestimate the difficulty of the poor people's lives. (The three I's)

5. Unpredictable environments and self-fulfilling prophecies (Physically, economically, and politically environments are unpredictable. Children give up on education and debts grow because these people don't think it'll ever help. Fight hopelessness.)

CHAPTER 2:

a. What is the puzzle?

b. What possible answers to the puzzle do Banerjee and Duflo offer?

c. What evidence do they provide to support their own conclusions about the answer to the puzzle? (be specific, give examples)

a. People don't want more food yet more food (especially more nutritious food) would make people and their children more successful.

b. Invest directly in children and pregnant women.

1. Give fortified food to pregnant women and children

2. Treat children for worms at school and feed them

3. Give incentives (social welfare payments come with nutritional supplements)

4. Use special foods that are especially nutritious

c. Evidence

1. Deworming children in Kenya

2. Micronutrient packages in Columbia for preschool children

3. Micronutrient Initiative/HarvestPlus making especially nutritious sweet potatoes suitable for African growth sent to Uganda and Mozambique.

CHAPTER 3:

a. What is the puzzle?

b. What possible answers to the puzzle do Banerjee and Duflo offer?

c. What evidence do they provide to support their own conclusions about the answer to the puzzle? (be specific, give examples)

a. Health Trap: The poor are unwilling to pay for technologies that could save their lives. Why? They obviously care about health they just prefer to focus on curative rather than preventative. This is a result of time inconsistency and believing they'll "do the right thing" in the future. Lack of information, weak beliefs, and procrastination.

b. The poor have enough money to take preventative measures. The answer is allocating money properly. We should use "nudges" to solve the problem of time inconsistency.

c. Give easy access to preventative care through nudges:

1. Families in Kenya can be given a first free sleeping net. They are then more likely to pay for a second and to recommend them to others.

2. 2 pounds of dal for getting a child immunized gives incentive immediately

3. Paternalistic policies work and are justified because its "easy to argue against them sitting on our couch in our clean homes with water".

CHAPTER 4:

a. What is the puzzle?

b. What possible answers to the puzzle do Banerjee and Duflo offer?

c. What evidence do they provide to support their own conclusions about the answer to the puzzle? (be specific, give examples)

a. There is a lack of education but it's debated why. Volunteer and semi-volunteer can produce great results yet literacy rates remain low.

1. Families see education like a lottery ticket and think there is little pay off even though each year of education boosts earnings statistically. Parents see an S-shaped curve when there isn't one.

2. Supply wallah vs. demand wallah: There is a lack of education opportunities versus there aren't enough people who want to be educated/have their children educated.

b. Answers

1. Focus on teaching basics (commit to "every child can learn")

2. Little training to get effective remedial teachers

3. Encourage learning at one's own pace

Information technology is more accessible (even though it's not utilized)

c. The goal should be for everyone to master the basic material repeating if needed.

1. Kenya's textbooks being in English

2. India's law to finishing the curriculum rather than working with students

3. Children running away from schools because they view them as pointless

Supply-wallahs" vs. "Demand-wallahs"

Supply Wallah:

1. 50% of teachers in India aren't in front of class when they should be.

2. Children learn more working in stores with parents than at school.

3. Need to supply quality teachers and demand will follow

Demand Wallah:

1. Villagers in India started educating their daughters when Business Process Outsourcing Centers started employing women. They saw a 5% increase in women being educated.

2. Rich countries force children to go to school so they then can focus on quality.

Incentive programs (money for families sending kids to school) raised secondary school enrollment from 67% to 75% for girls and 73% to 77% for boys. Less of a lottery ticket when families see immediate benefit.

CHAPTER 5:

a. What is the puzzle?

b. What possible answers to the puzzle do Banerjee and Duflo offer?

c. What evidence do they provide to support their own conclusions about the answer to the puzzle? (be specific, give examples)

a. High fertility rates lead to poverty so why do they continue to have so many children?

b. Answers

1. Make it unnecessary for people to need many children to be successful, especially males.

2. Effective social safety nets (health insurance and pensions)

3. Saving plans

c. - Population grows fastest where child mortality is highest.

- In most wealthy countries they have enough children to replace parents stopping population growth

- Saving lives of poor children leads to fewer children

- The longer we delay helping poor children the larger world population will grow.

- High mortality leads to more children because families don't know how many will survive.

- Pregnancy is hard one women so having more children is difficult.

Young women in Kenya may not use protection because the father may feel obligated to care for them. Its an investment but they also don't get a say in number of children due to age, society, and family.