GOV 312L- Exam #3 - Moser/McDonald

What are institutions? What is the difference between institutions and organizations? What are some examples of institutions in domestic and international politics?

-"Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction. In consequence they structure incentives in human exchange, whether political, social, or economic"; note: institutions are rules governing human interaction, incentives- institutions tend to award certain behavior and punish others

-Institutions are rules, organizations can contain institutions but are not rules but rather are actors

-Examples: institution= US Constitution; organization=Congress

Understand, explain, and give examples of how international institutions shape international politics through the following mechanisms: a) guiding behavior and shaping expectations; b) providing information about state interests and incentives to comply; c) allocating and generating power for states.

a) Important Rules: Sovereignty as legal recognition (by other states) of a government's right to regulate people (set laws for them) living within set territorial boundaries, Trade Liberalization- grant access of foreign companies to domestic markets--facilitates the expansion of globalization and commerce (WTO, a regulator)

Organizations, like WTO and UN, matter in global politics because they sometimes possess the capacity to enforce the rules that they are designed to promote; enforcement capacity- an organization possesses the means to punish a member state if it violates the organization's policy (WTO has this power); problem: if IO does not possess means to enforce (think UN) and has to delegate authority to enforce to states-- can mean effective end to IO e.g. League of Nations

b) Provision of info helps to reduce uncertainty about a state's future behavior, which can encourage cooperation among states in the future; examples: Chinese entry in WTO- china had to comply with the concessions of entry for gaining better access to american domestic market; weapons inspectors--check for compliance

c) Creating new international law, IO's can rely on their rules to build up their own power to influence states (Judicial activism of WTO). Setting a specific agenda, rules among IO's allocate power among states by influencing the capacity of these member states (Veto power of UN Security Council)

How does U.S. membership in international organizations like the UN, NATO, and WTO demonstrate the ability of international institutions to solve a fundamental problem of international politics - to create and preserve coercive power and, at the same time, constrain that same power?

-IO's like UN, NATO, and WTO help to promote and defend policy ideas consistent with American interests like democracy promotion, free trade, respect for human rights, and the construction of an affective collective security organization. Ikenberry: US entry into international organizations helps to solve fundamental problem of politics at international level, but bc it is multilateral other states can work to check or constrain american policy when they oppose it.

Watch the Jon Stewart video clip on the United Nations and explain his critique of the United Nations. Why is this critique "funny but wrong" according to lecture?

-Even though Jon Stewart critiques the UN for not being effective with setting rules, the UN actually holds international legitimacy on a set of foreign policy actions

Why does the United States participate in the United Nations and often abide by its decisions when it could just ignore it instead (because it possesses much greater military capacity than the UN)? What is the tension between the United States and international organizations? What do states like the U.S. gain and lose from participation in international organizations?

-The US participates in the UN because it is a powerful source of legitimacy abroad and at home for contreversial polices (e.g. US seeks approval for Iraq was in 2003), UN reflects global public opinion which makes it easier to gain allies with this support, the domestic public are more likely to support policies that have UN approval

-tension created by managing international relations with other states and also a domestic imperative to preserve the capacity of the american gov't to remain sovereign in affecting public policy.

-Gain of legitimacy for the policy and security of additional support to implement policies BUT can require some surrender of sovereignty or authority of elected officials (surrendering democratic control)

What are the Cold War origins of the North Atlantic Treaty Organization (NATO)? What did Lord Ismay mean when he said the goal of NATO was "to keep the Russians out, the Americans in, and the Germans down"? What were (and are) the central dilemmas of NATO from both the European and American sides of the relationship?

- NATO alliance chief function during the Cold War was to provide military security for western Europe against the possibility of a Soviet attack, consisted of many multi-faceted benefits commitments it enacted

-Ismay meant:

1) "Keep the Russians out"- refers to NATO as the pillar to American lead containment of the Soviet threat, provided protection from conventional and nuclear attack, cornerstone of peace and prosperity

2) "the Americans in"- refers to NATO as a binding mechanism for American military power, american led alliance provided a necessary hegemon for the collective security arrangement, the US provided essential public goods like military might, NATO forced them to act multilaterally rather than unilaterally when taking into account foreign allies and debating foreign policies and military action

3) "the Germans down"- refers to NATO's role in maintaining peace between the democratic powers in Europe by integrating them into an alliance that was lead by an outsider (US)

-Dilemmas:

1) Potential for European shirking, European countries' shirking their responsibility to provide for their own military security by not spending enough on their militaries during the Cold War

2) US potentially being a reluctant hegemon

What dilemmas did NATO face at the end of the Cold War? What was the case in favor of NATO expansion after the Cold War? What was the case against NATO expansion after the Cold War?

-Dilemmas:

1) Loss of NATO's mission- end of Warsaw Pact mean end of NATO? , finding new missions and adversaries including interventions outside of the region

2) Pressure from Eastern Europe to enter NATO, arguing they were unfairly abandoned by the West to be left vulnerable to Russian hegemony, although it seemed to be good more countries were supporting NATO EE nations brought burdens because some were simply not ready to join the organization

3) What to do about Russia? How should NATO approach the 'new Russia'? , NATO should preemptively contain Russia (even though it was no longer communist) vs. including Russia into NATO

- For: NATO's original goals remain relevant, NATO could be used as a more effective "mini-UN" mostly for the use of legitimacy

-Against: the mission of NATO was already accomplished which makes it no longer relevant--security in Europe no longer needs NATO, If NATO continued could be seen as a threat and also antagonizes Russia

According to the Patrick reading, describe the current demand or need for international organizations to address new international problem given technological changes and other transnational threats. Does Patrick think current international organizations are up to the task? Why or why not?

-Tremendous need for international rules and process of enforcement as problems become transnational because single states can not resolve these issues alone (who regulates internet? , what is the correct foreign response to a hacked computer infrastructure? , etc.)

- Patrick argues: IO's are too big and inefficient, Current IO's are ill-equipped to address emerging transnational problems, move to smaller organizations and more incrementalism, current IO's not dying but evolving and diversifying

How do Joseph Schumpeter and Samuel Huntington (cited in lecture) define democracy? What is the central aspect of democratic politics in both of these definitions?

Joseph Schumpeter - Democracy is "that institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people's vote."

Huntington: "Elections, open, free and fair, are the essence of democracy ... Governments produced by elections may be inefficient, corrupt, shortsighted, irresponsible, dominated by special interests, and incapable of adopting policies demanded by the public good. These qualities make such governments undesirable but they do not make them undemocratic."

According to Robert Dahl (cited in lecture), what are the three categories of "procedural minimal" conditions for democracy? What are the central benefits of democracy?

Robert Dahl argues that competitive elections are the basis of democracy.

But there are more conditions that need to be met:

Public Contestation:

Multiple parties competing in elections and the right to people to receive information and assemble to hold free and fair elections

Electoral Competition.

Individual freedoms.

Inclusion

Civil rights and liberties guaranteed, but also equal and universal participation.

This precondition is difficult to meet even for US (Quiz answer: American democracy is only existent from the 1960s Voting Rights Act).

Democratic Sovereignty

If unelected bodies like military make the decisions, then the country is not a democracy.

Ex: Iran.

According to Dahl (cited in lecture), what are some common arguments against democracy? How does Winston Churchill's famous quote about democracy as "the worst system of government except all others" capture the flaws of democracy but also a defense of this system of government?

Inefficiency - Democratic governments cannot usually make timely and difficult decisions as it can be hard to obtain majority.

Example: Getting the votes of the 1000 students in the class is time-consuming.

The remedy to democracy's flaws - centralized power - is far worse.

Churchill: No one pretends that democracy is perfect or all wise. Indeed, it has been said that democracy is the worst form of Government except all those other forms that have been tried from time to time."

Why is the idea that democracy somehow affects international politics nested in the assumption that a state's foreign policy is influenced by its internal composition? What are the common aspects of domestic politics that are commonly asserted to influence foreign policy?

Foreign policy is dependent on what the majority of the population want.

Societal factors:

Composition of society

Balance of power among them

Relative size of constituencies.

Capacity to engage in collective action.

Example: majority is not really interested in isolationism.

How institutions aggregate these interests?

Which policies that society wants are included and which ones are excluded.

How might democracy influence international democracy in general? How do societal interests and institutions such as elections and checks and balances affect a state's foreign policy?

Electoral constraints

Elections are a means to punish leaders for poor decisions (like going to war)

This explains why democracies are less likely to go to war.

Also, when democracies do go to war, they only go if chances of victory is high.

Autocrats don't have this problem.

Sustaining commitments:

checks and policies make it difficult to change status quo policies once implemented. (Democratic leaders cannot fail on their promises, Autocrats can.)

Externalize the norms of conciliation and compromise:

Republicans and Democratic gridlocks creates stability. Nobody can do something extreme.

There is shared identity, by which they expect conciliatory policies become externalized, sustains cooperation.

Transparent decision making

Facilitated by checks (other parties can publicly complain) + competitive press.

How does a shared identity among democracies contribute to compromise between such states?

Shared democratic identity other democracies: externalizing norms of conciliation and compromise

Public support is less when the enemy is also a democracy.

What are the presumed consequences of democracy for interstate relations?

More Cooperation in Trade

They trade more: Join preferential trading agreements such as lower customs barriers at a higher rate.

Engage in more international trade

Foreigners invest more capital in democracies

More likely to join a military alliance with another democracy

More likely to win wars

Democratic peace

Claims that military conflict (low levels, including threat to use force, and war) less likely between only two democratic states.

Democracies will be peaceful toward other democracies, but not peaceful to autocracies.

So the war between US and Iraq/Russia is expected; US vs Canada is not

What is the democratic peace theory? How do the factors that contribute to democracy's influence over foreign policy in general - electoral constraints, institutional constraints on power such as checks and balances, and a shared democratic identity - help to explain, in particular, peaceful relations between democracies?

Claims that military conflict (low levels, including threat to use force, and war) less likely between only two democratic states.

Democracies will be peaceful toward other democracies, but not peaceful to autocracies.

So the war between US and Iraq/Russia is expected; US vs Canada/India is not

What are the central tenets of Wilsonianism?

Wilson was at the forefront of placing democracy ideals in front of democracy strategies.

He had three principles (some were erroneous at times):

Democracy is superior to all other forms of government.

Democracy is a universal value (even in a poor country).

The US has a moral obligation to spread democracy.

Omar Encarnacion: Using military force has not been a good idea in enforcing democracy is the bottomline.

According to lecture, why does Professor McDonald believe there is no such thing as the democratic peace?

why democratic peace is not true (why we should not promote democracy with the expectation that peace would follow)

--Encarnacion: conditions associated with democratic transition and how those conditions foreign policy on subsequent states

--ex: Iraq: initial creation of democracy, then collapse into civil war that created even larger set of problems for US

--long term benefits of peace may be outweighed by short term costs of war

What three major critiques does McDonald raise in questioning the logic of the democratic peace theory? What is his alternative explanation for what appears to be a lack of interstate conflict between democracies

post WW1 phenomenon: before WW1 democratic states were more war-like then autocratic states; how could democracy generate opposite effects before & after 1914?

• contradiction over how democracy promotion makes US allies & promotes peace overall

-- Hamas: what if democracy itself produces a government that is anti-US?

--democracy protects the process by which a group selects a leader—it does not protect policy outputs that might emerge from that process

• lack of interstate conflict

--any peace has emerged because of great power efforts to shape the regime type and the foreign policy of smaller states

--US has been central since end of WW1—peace is not because of democracy but because of US influence in international realm

What is globalization? What are the key barriers to international trade?

Globalization: Integration of national economies into a single global economy through reduction of barriers to trade (like distance)

Key Barriers

Transportation costs

political barriers to trade (tariffs, subsidies)

How does an expanded market increase competition? Why is the scope of competition a function of the size of the market?

As national barriers to trade fall and the market increases, competition becomes very intense

If the U.S. did not trade with global economy, we would be competing with all Americans for a job, rather than all 7 billion people in the world.

Ex. Moser is a football superstar in his small town in Nebraska, but was not offered a collegiate football scholarship because the scope of competition for the scholarship was much greater since they recruit nationally (national labor market)

scope of competition as function of size of market

How do we get competition through markets? How does competition increase the efficiency of economic enterprises? What happens to inefficient economic actors when they face the increased competition of markets? How does state support of inefficient actors affect this relationship?

Economic actors interact through price mechanism in markets

Ability to charge lower prices and stay in business as indicator of efficiency

Inefficient actors either get state support to remain in business or go bankrupt... lobbying

Cheap loans

government contracts

Tariffs: barriers that prevent rivals

State support of inefficient actors helps to keep U.S. businesses alive by charging consumers less and increasing the efficiency of the enterprise.

How do political barriers to international trade such as tariffs affect prices and the competition within domestic markets? How does the example of the textile trade covered in lecture illustrate this relationship?

Political barriers to trade like tariffs increase price of imported goods and DECREASE competition in domestic economy.

Ex. Textile industry in U.S. -- preserve U.S. textile industry by implementing tariffs. Elimination of political barriers to trade would force domestic producers to compete with the most efficient producers (bangladesh textile industry) that exist in a single global economy, not just with domestic producers.

Why do states engage in trade? What is comparative advantage? How do states produce gains from comparative advantage, specialization, and trade?

We trade because of comparative advantage. States allow domestic firms to engage in international trade because it increases national income and generates wealth.

Comparative advantage: Specialization in production of a few things, make surplus and trade that surplus for goods/services that cost us relatively more to produce... increases our income over time

Gains

Gains created from differences in relative ability (efficiency) to produce goods.

Specialize in production of some good where relative efficiency (cost differential with some other supplier) gains are largest.

What is the difference between absolute advantage and comparative advantage? Understand the scenario offered in class on comparative advantage between the U.S. and Japan in the production of cars and apps. Understand Ricardo's approach to comparative advantage by focusing on both goods in both countries.

Absolute advantage: can produce product in fewer labor hours

Comparative advantage: Focus on specialization in production of one good (where relative costs lower) and then trade to increase aggregate income.

Ex with US and Japan

It takes 100 labor hours in the US to make a mid-sized car

It takes 150 labor hours in Japan to make the same car

It takes 200 labor hours in the US to design the next hot-selling IPAD app

It takes 1000 labor hours in Japan to design the next hot-selling IPAD app

US has absolute advantage in production of both BUT....

David Ricardo says it is more beneficial to focus on comparative cost across both goods and countries

U.S efficiency gains are much larger in apps than cars (can generate more surplus with apps)

States can increase income via production specialization and trade

states trade because it increases income and increases total economic pie

If trade makes states wealthier, why is there resistance to globalization? Understand the Heckscher-Ohlin model of trade theory and the domestic distributional consequences of globalization. Give some examples.

Resistance to globalization due to distributional consequences: some gain and some lose

Heckscher-Ohlin model tells that trade and globalization alter the size of the pieces of the pie.

Trade helps to create jobs in sectors that rely disproportionately on resources that the US possesses in abundance

Ex. job creation in financial and high tech services because we intensively use high-skilled labor (people with college degree)... by earning a college degree you are enabled to gain from globalization.

Jobs are lost in sectors that rely disproportionately on resources that are scarce in US

Ex. unskilled labor in manufacturing

Globalization redistributes wealth

Groups that get the short end of the stick are more likely to lobby to limit imports

Since globalization creates economic winners and losers, what are the political implications of globalization and how does this help explain the continuation of trade barriers that constrict national income? Who tends to win and who tends to lose in the domestic political conflict over trade policy?

Implications

globalization tends to activate domestic political conflict because some groups win and some groups lose

Some groups get huge income losses and give incentive to lobby for tariffs

This powerful reason is used to explain prevalence of barriers to trade that constrict national income

Consumers lose because of collective action problem

institutions help to set rules by which winners and losers from trade hash out trade policy

Ex. Agriculture still receives heavy support because disproportionately represented in the senate

What is the Reciprocal Trade Agreements Act (RTAA) and why is it important for understanding the politics of trade policy? Why did the U.S. shift responsibility for trade policy from the legislative to the executive branch?

RTAA: US significant shift to embrace free trade and power was shifted to executive branch

Shifted to executive branch because congress recognized the dysfunction from constituencies in size.

What is the puzzle of the international bond market? Why is it so strong and has such great influence of the financial policies of states?

What are three important functions of money?

Medium of exchange: facilitates trade and specialization

Unit of account: means to measure value of things and compare different goods and services

Store of value: allows wealth/value to be held over time (saving and investment)

What is the relationship between money and interest rates? How do interest rates affect economic activity? What are the political implications of this relationship?

Price of money is reflected in interest rates and is set by interaction of supply and demand.

As costs go down, economic activity tends to go up (easier to borrow and buy things)

When interest rates fall, more houses are bought and sold

As costs go up, economic activity tends to slow (GDP growth slows or negative)

Higher interest rates slow down activity

Policy implications: governments can stimulate economic activity by pushing interest rates down

How are interest rates set? Understand the interaction between demand (price level, GDP, risk) and supply (fractional reserve banking, central bank actions) in the setting of interest rates.

Interest rates set by interaction of demand

Price level: As prices go up, need more money to make same quantity of purchases

Aggregate economic activity (GDP): as GDP increases, more goods and services are sold; need more money to facilitate transactions

Risk: Can governments maintain sound economic policies? control inflation? repay debts?

safe to hold dollars in comparison to other currencies

Supply: Fractional reserve banking

banks as intermediaries: generate profits by lending money (e.g. mortgages) at higher rates than they borrow (deposits)

Have to hold some deposits as reserves: willingness to lend deposits shapes rate at which money supply expands

reserve rations: portion of deposits banks must hold on hand and what portion they can lend out.

expand money supplies through circulation of money

What is inflation? What are its negative consequences? What is deflation and why is it also bad? What is the optimum rate of price growth? How do you choke off inflation?

Inflation: rising prices

Negative consequences: erodes value of...

savings because reduces purchasing power

creditors' assets (loans)

high prices means people don't buy and economy slows

Deflation: lowering of prices

Negative consequences: if people think prices are falling, then they will wait to buy; if everyone waits, then economic activity collapses and firms go bankrupt and/or lay people off

What is the Federal Reserve? How is it different from commercial banks? What are its main functions and policy goals?

Federal reserve: central bank of the U.S.

regulates bank sector and acts as lender of last resort to banks

Banks' bank: different from commercial banks because not tasked with earning profits

policy goals: employment and limiting inflation

Influence short term interest rates (loans with terms in days and months) through discount (lending) rate

Influence long term interest rates with open market operations

What is quantitative easing and how did it play a big role in the recovery following the 2008 economic crisis?

Quantitative easing: Fed purchase of US Treasury Bonds (Fed Gov IOUs) and mortgage backed securities (bundles of loans backed by home mortgages) to push down long term interest rates (e.g. 30 year mortgage)

Key role in responding to 2008 financial crisis

Federal reserve balance sheet (total assets and liabilities) went from $900 billion in September 2008 to $4.5 trillion in November 2014

What is a bond and what are its key traits? How do extremely deep markets in U.S. treasury bonds and mortgage-backed securities help make the U.S. dollar a key reserve currency? How does this situation allow the U.S. to run big deficits?

Bond is a loan, or an IOU

Promise to repay a fixed amount of money in fixed period of time (time to maturity)

Payment often in two forms (principals and coupons)

Investors/creditors buy IOUs

Debtors offer IOUs

Key Traits

Price: price that creditor pays to debtor to buy IOU

Example: might pay $94.34 for a promise (IOU) to get repaid $100 in a year

Price=$100/(1+i) or 94.34=$100/(1+.06)

Yield (interest rate)

In the example above, the yield would be 6%

Coupon

Quality of debt: score by credit agency that makes guess about ability of debtor to repay, helps to influence interest rates

Bonds act as a currency except it gains interest

Extremely deep markets for US Treasury bonds and mortgage backed securities in US

Serve as source of reserves for banks all over the world (because treated like cash) AND central banks around the world

Helps make dollar a key reserve currency

Example: Chinese central bank has about $3.9 trillion in reserves, maybe 2/3 of that in $

This excess demand for $ allows US government to run big deficits because world needs a currency that can be trusted and the dollar is it

allows Americans to buy many things based on credit,

What is the Trifflin dilemma? What are its implications for the U.S. economy? What are its security implications?

Trifflin dilemma: as it grows, global economy needs more expansion of money supply to facilitate transations, howerever get this expansion via great US government debt

ow long sustainable? Cannot run deficits indefinitely just like credit card company eventually cuts you off

Ultimately, inflationary which drives the value of the dollar down

But can sustain as long as people still willing to lend money to Treasury: can measure this appetite through yields (interest rates) in Treasury markets

This why controlling budget deficits so important after recovery began

Example: China pressure on Obama about Obamacare because worried about what do to deficit

Security implications

Will China sell $$$? Ask yourself about their incentives to do so

Rest of world subsidizing US military leadership post-9/11? US runs huge budget deficits, yet interest rates go down. This tells us world still willing to lend us money.

Currencies valued in relative terms: dollar denominated investments still safer than others

What are exchange rates? How does the differential in exchange rates between countries affect trade (the price of imports and exports)? Understand the example of the U.S. and the Japanese yen in the 2010s that was offered in lecture. What are the implications of differential exchange rates for U.S.-China relations?

Exchange rates reflect differences in value of respective currencies; price of one currency in terms of another

As $ appreciates, it can buy MORE units of a foreign currency

Imports go up because they are cheaper

As $ depreciates, it buys FEWER units of a foreign currency

Example

September of 2011, $ bought 77 yen

November of 2014, $ buys 115 yen

Dollar has appreciated RELATIVE TO YEN since 2011

Implications for US-China relations

China has long sought to stimulate exports to US

How? Push dollar up to increase purchasing power of American consumer

How push dollar up? Buy dollar assets like US Treasuries and mortgages

Ask: do they really want to sell those dollars?

Explain how the mobility of capital has increased the discipline of global capital (bond) markets. What happens when foreign capital holders lose confidence in a government's monetary policy? What are some recent examples of this?

Capital mobility has increased. Costs of moving financial assets from one country to another is extremely low or nonexistent, so countries can easily "punish" other countries through the bond market

If foreign capital holders lose confidence in a government's monetary policy, they can sell their bonds easily. This reduces the borrowing ability of the country and raises their import taxes

Empowers Electronic Herd: when foreign capital holders lose confidence in gov's monetary policy, they sell assets which depreciates the currency

Ex. Euro crisis

How does this discipline affect democratic politics? If bond markets constrain national monetary policy because of the threat that capital will move to a different market then do elected officials the ability to respond to voters' demands?

-international capital markets can constrain monetary policy and this limits the discretion of elected officials and forces them to rush into recession to reassure creditors

What is the International Monetary Fund? What are its main functions? What is the main source of its influence in the international economy? What is conditionality and how does the IMF use it to promote economic reforms within countries? Why does the U.S. have so much influence within the IMF?

International Monetary Fund is pool of capital set up to provide international liquidity

Main functions

Stabilize currency initially, now everyone relies on USD

Limit exchange rate fluctuations

Prevent currency wars (when gov intentionally devalue their currency to make imports more expensive) from Depression that interrupted trade

Main sources of influence

Its set up to provide international liquidity which unfortunately hasnt worked to well because the world still relies on the US Dollar.

Conditionality: demands conditions that change economic conditions in country and enhance long term ability to repay

IMF loans as multiple disbursements: get partial money, then must implement reforms before getting more loans

Often imposes real pain: cut tariff barriers, cut budget deficits i.e. raise taxes and cut spending

Better to reform your economy

US has so much influence with the IMF because voting power is dependent on how much money countries donate to IMF

US donates the most

What is the Bretton Woods economic order? What were the main forces that served as an impetus for the U.S. to construct the Bretton Woods order? What are the main organizations that emerged from Bretton Woods?

Emerges in final stages of World War II (1944): US supports creation of international organizations to ensure economic growth through international trade

Impetus from:

Great Depression

Emerging battle against Communism

Increasing support for free trade in US

Key organizations emerging from:

General Agreement on Tariffs and Trade (GATT that would become WTO)

International Monetary Fund to stabilize international currency markets. Countries would lower the value of their currency to make imports cheaper and exports more expensive.

International Bank for Reconstruction and Development (would become World Bank)

Japanese yen inflated by 50%, making japanese imports to US cheap, and US export to japan expensive

Discuss the 2008 financial crisis and the role that the United States played in sparking the crisis. How did the U.S. respond to the crisis and why did the U.S. government bail out the banks? What were the political challenges associated with the bailout and what are some of the consequences for the international economic order for the bailout.

Why? Watershed Event, lasting effect on psychology. The world stood at the brink of disaster, the onset of a new depression. Unemployment pushed up to 10%. The stock market shed half of its value. The US has largely recovered from this. Stock market is back, all time highs. Housing market is back up, and unemployment is down.

Why did it start? it started in the US and spread. Stemmed on financial system based on mortgage backed securities. they are bonds, backed by homes held by citizens. It relied on housing markets that were expected to increase over time. As houses started to fall, so did the value of the bonds. Shitty practices in house and financial practices. Failure to regulate

2004-2006 banks lent money for people to buy homes to people who would never be able to repay the loan. There was an expectation for the houses and land to increase in price. So a new loan would be made, by remortgaging.

How US respond? part of the problem was inconsistent responses. Created expectations of government intervention. Bailout of AIG was critical.

Why bail out the banks? Directly inject capital into banks. US nationalized banks by lending money and taking a stake. Forces banks to insulate using capital.

What are political challenges associated with bailouts? Hard to explain to public that their tax dollars are going to bailout the banks that screwed up the whole economy in the first place. But it was necessary because otherwise all banks would have collapsed and we would have to make all transactions cash only

What are some of the larger international political consequences of this crisis? world recession as a lot of countries have US treasuries

reinforcement of US leadership and failure for others to respond

According to the Farrell reading (his interview with Thomas Oatley), how did the Iraq war contribute to the 2008 financial crisis?

How does oil compare with other natural resources in terms of its share of energy consumption? What sorts of consequences occur when oil prices go up?

About 33% of total global energy consumption (natural gas at 24%, coal at 30%)

About 37% of total energy consumption in US (natural gas at 30%, coal at 20%)

Significant portion of global trade (about 15%), 2/3 of oil traded

When oil prices up

Gas prices up (more expensive to drive to work, fly in a plane, conduct international trade, and move goods within domestic economy)

Can induce global recession: stagflation of 1970s

Transfers wealth from key oil-importing countries (US, Japan, China) to oil-exporting countries (Saudi Arabia, Russia, Venezuela)

What are the important characteristics that make the international oil market unique? Why is it important that oil is traded in a single open market?

Single global market for oil

Spot and futures markets (trade contracts to deliver barrel of oil at specific date; don't actually physically exchange oil)

Important fact in debates about energy independence: Even as US imports less, price can still be shocked by developments in Middle East, Russia, and China

What are the unique characteristics of the demand for oil? What does it mean that oil has "inelastic" demand and few substitute goods? How does this affect demand for oil? Know Moser's example on taking the bus to work.

Price determined by intersection of supply and demand

Demand

Relatively inelastic in the short run: quantity demanded not responsive to shifts in price

Few substitute goods (at similar price)

Spikes in oil prices often caused by outward shift in demand curve

Great Recession slows demand growth in developed world (US, Europe, and Japan)

Huge growth in developing world and BRIC countries (mostly China)

Moser used to drive to work even with the gas prices rising, he changes and took the bus to work because it was convenient and free, but it took that much change in order for him to change his habits

Describe the contours of the supply and demand on the global oil market? Who are the big players? How has new exploration in North America, such as shale oil, changed things?

Supply

OPEC (Members: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE, Venezuela) key supplier 80% of proven global reserves, production from 30.6 mbd (2001) to 36 mbd (2013)

Saudi Arabia: from 9.1 (2001) to 11.6 mbd (2013)

Iraq: from 2.4 (2001) to 3.1 mbd (2013)

Iran: from 3.8 (2001) to 4.2 (2011) to 3.2 (2003), can see effects of sanctions

Russia significant player in oil markets: from 7.2 mbd to 10.5 mbd

Big growth in production capacity in North America

United States (shale): from 9.0 (2001) to 12.3 mbd (2013)

Canada (tar sands and shale): from 2.8 (2001) to 4.1 (2013)

Oil production continues as attempt to drive shale companies out of business, but oil prices falling to compete

What is OPEC? How much oil does it control? How does it operate to manage oil prices? What is the special role of Saudi Arabia.

OPEC (Members: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE, Venezuela) key supplier 80% of proven global reserves

Countries export or import more oil to keep prices stable. Ex. Iran exported less oil to drive prices up, but Saudi Arabia exported more oil to keep prices low

Operates like a cartel:limits production to ensure high price but not too high that customers like US reject their oil.

Saudi Arabia as swing producer: has reserve capacity and changes production levels to stabilize global markets

What has OPEC done in response to

the US shale oil revolution and how has the "price war" initiated by Saudi Arabia and

OPEC affected global oil prices and US oil production?

What is the shale oil revolution? What does it mean for the US to be energy independent and how does the shale oil revolution affect American energy independence? How has the shale oil revolution affected the global price of oil and how have lower oil prices affected geopolitics, especially in the Middle East?

What does Levi argue regarding the effects of Asian demand for oil on the drop of global oil prices in 2014? According to Levi, how will Asian demand for energy affect developments as the American shale oil revolution and efforts to combat climate change?

What are the three different distributional struggles related to the problem of global warming?

Challenging political problem: distributional struggle on at least three levels

Within countries: e.g. business v. consumers in the US

Between countries: China v. US/Europe

Across generations: current v. future inhabitant

What is the basic scientific claim about the causes and extent of global warming? What are the main environmental consequences that scientists fear will result from a warming planet?

The scientific claim: Great quantities of greenhouse gas (carbon dioxide) levels in the atmosphere trap heat and contribute to global warming

Attributed to man made changes associated with Industrial Revolution, principally burning fossil fuels like oil and coal

Environmental Consequences

Global temperatures up about 1.4 degrees F since 1880, much of it since 1970s

Drought? More extreme weather patterns?

Ice sheets melting, ocean levels rising

What do with low lying population centers?

Ocean levels rising

What is the tragedy of the commons? Why is it rational for individuals to overuse public goods? How does this phenomenon help to explain the difficulty of managing a sustainable use of commonly held public property? Know some examples.

Emerges with public property or resources for which it is difficult (costly) to restrict their use (consumption)

Divergence between private benefits and social costs: Individually rational for people states to consume, but diffused costs to society insufficient to prevent overuse

Resource gets depleted

Examples: oil fields, common grazing lands, overpopulation, fisheries, atmosphere

EXAMPLE- Factory that dumps pollutants into river, people get sick but depend on factory for jobs. Factory adopts alternative energy source to cuts emissions, becomes less profitable, out of business. OR City pays factory to cut emissions, simultaneously subsidize production. Absence of property rights creates externalities (costs or benefits of some transaction by people not involved in transaction)

Private costs and social costs of using resource diverge

Factory pays nothing for pollution (zero private costs) while people in city pay health costs from unsafe drinking water (social cost)

What is the Coase theorem? What are the implications of the Coase theorem for assigning private property rights over common pool resources? How is this related to cap and trade plans for carbon emissions? What are some of the challenges of the Coase theorem?

in the absence of negotiating coasts, private agents will bargain to an efficient outcome as long as PROPERTY RIGHTS ARE WELL DEFINED. The important part of this theorem is defining property rights.

Assign property rights over common resources in ways such as:

cap and trade: cap carbon emissions and give over countries a quota so countries that don't emit as much pollution can trade their missions to more powerhouse countries such as China.

Challenges: Difficult to assign rights for public goods; ex: how much air does China use?, how and who is going to monitor those emissions?, how are violations going to be enforced?, how to assign rights?

BRIC countries less developed so they are not prepared for changes, while US and UK are more prepared (with solar panels, less transportation, etc)

How do distributional conflicts between developed countries like the U.S. and developing countries, like China, complicate global cooperation on climate change?

BRIC (Brazil, China, India, Russia) countries versus developed (US and EU): how maintain industrial competitiveness. NOT as prepared to change

China wants foreign aid to offset costs of industrializing with cleaner energy

Variation in carbon emissions across countries means different levels of preparedness for changes

US: carbon consumption in electricity, transportation, industry

Europe: less in transportation

Industry (and carbon emissions) shifting to developing world; caps would impede their growth

In terms of practical ethics and the environment, what value conflicts are involved in the ethical debate surrounding environmental protection?

Environmental protection comes at short-term economic costs. Only jobs and economy are hurt momentarily and prices go up.

Long Term benefits have a huge reward. It's uncertain how long in the future before benefits are seen, but we can control ice cap melting and food shortage as we have a moral obligation to leave a better world behind for our future inhabitants

These long term and short term effects entail tangible and abstract components.

Short term costs are tangible and real while what happens in the long term seems not so important/abstract.

What is the conflict between short-term and long-term considerations? Why is it so difficult to make short-term sacrifices at the present time for longer-term gains that may take place sometime in the future?

Short term sacrifices are tangible, real, and can be enacted in minutes, long term costs seem far more abstract and not vital at the current moment a sacrifice has to be made.

What are the two manifestations of the conflict between individual actors and the global community? How is the ethical conflict associated with the problem of providing and managing public goods?

Nations (individual) and global (community) needs: Nations want to address the environmental issue with its self-interest involved, it need to keep its economic costs low to preserve the nation. Global benefits are that there will be clean air and water, and stable weather patterns, it is a classic public good that will be enjoyed by all countries regardless of whether they contribute to its realization or not

Individual person vs. Community needs: Individual efforts to save the environment costs the individual in terms of convenience or economic well-being and the benefit is a public good, can be incentivized. Community benefits similar to global ones.

How does the focus on the individual as the "fundamental moral unit" affect our understanding about the ethics surrounding climate change? Why does it push us to view environmental protection largely through the lens of self-preservation?

The individual as the "fundamental moral unit":

In most of Western philosophy, the individual is the focus of ethics and morality

Therefore, environmental protection is often framed in terms of the need to safeguard the climate in order to save lives and reduce harm to individuals (from floods, water/food shortages, extreme weather)

According to Urpelainen, why was the Paris climate deal a relative success compared to previous attempts at an international climate agreement (such as the Kyoto Protocol)? What does Urpelainen claim are the main positive elements of the Paris climate deal? According to Urpelainen, why is a voluntary approach, in which countries set their own voluntary emission targets that they enforce themselves, an improvement over a binding agreement with imposed targets?

Provides a positive perspective on the Paris climate agreement.

Major takeaway - Necessary and positive first step but must do much more needs to be done to mitigate climate change.

Positives of Paris deal - They made a deal that committed both developed and developing countries to control emissions.

---Broad collective agreement: Previous agreement, the Kyoto Protocol, only had emission reductions for developed countries. Paris deal commits both developing and developed countries to emission reductions. Cannot mitigate climate change without developing countries involved in the effort.

---New voluntary approach: Uses voluntary national targets rather than binding agreements with imposed targets to achieve lower emissions. More realistic.

---Addresses needs of developing countries: Has $100 billion in "climate finance" to help developing countries find ways to break out of poverty through development without contributing to climate change.

Challenge is executing and deepening the Paris

deal. Current targets will not get the job done.

According to Rodrik, what is the political trilemma? How does the Euro crisis illustrate the tensions associated with it? How does the World Trade Organization illustrate the tensions associated with it?

The political trilemma is you can only have 2 (and with globalization only 1) of the following:

-international economic integration, national politics, or one government of democracy

Euro crisis- all countries that use the Euro have the benefits of the Euro (which is to borrow at low German rates) so some countries spend more than they are taking in like Greece since while there is a common monetary policy (central bank) there isn't a common fiscal policy (done by the govt). To make a common fiscal policy (economic integration) it would move choices away from national policies to international organizations.

WTO- tries to foster and promote free trade and economic integration, but states can be punished for not keeping their promises by WTO. WTO policies removes processes in democracy since the WTO policies are not voted on by citizens in the US, and those we do elect can be overruled by WTO, constraining national govt policies and choice for democracy

According to Ferguson, how is fiscal policy linked to imperial collapse?

He challenges the typical narrative of imperial rise and fall being gradual, he believes that it is sudden and will just hit the US because of the deficits post 9/11 will hit a point where it is no longer sustainable. The US must tax more to maintain political and military influence.

According to lecture, what are some of the strengths of the United States and its political, economic, and social structure?

It is innovative and adaptive