PBPL001 Final

Authoritarianism

The idea that society is better if it is ruled by one strong individual

* Remember that there is no way to smoothly change the government from one of democracy to authoritarianism

What does authoritarianism do to the economic pie?

Shrinks it

Liberal Democracy

A governing system where elections are held fairly and all voters have knowledge of the activities of those who exercise power

Illiberal Democracy

A governing system where even if elections take place, citizens are cut off from knowledge about the activities of those who exercise real power because of the lack of civil liberties and institutions

* Not an open society

Pigouvian Tax

A tax named after Arthur Pigou that is designed to change behavior, not to raise revenue

Liberalism

Argues that only free markets and capitalism can ensure political freedom and democracy

What is seen as a threat to liberalism

A concentration of power onto only one body

Who are liberals?

Joe Stiglitz and Milton Friedman

Socialism

A system where society, usually in the form of government, owns and controls the means of production

* Advocates for production and distribution to be regulated by the community

Capitalism

An economic system where the means of production are owned by individuals instead of the government

In Capitalism, how are the prices of goods determined?

The prices of goods are determined by market prices

Progressivism

Believes in the expanding rights and government provided services

Examples of what progressives want to expand on

* Healthcare
* Food
* Shelter
* Privacy

Milton Friedman

An economist from the University of Chicago who won a Nobel Prize in economics in 1978

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He advocated for limited government and that sometimes being covered by the market leads to less freedom

Joe Stiglitz

Professor of Economics at Columbia who won the Nobel prize in 2001

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He is a progressive who advocates for the idea that economic efficiency and prosperity requires a string of government action

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Also believed in the investment in people and that if we invest in people, society will be better

Negative Externality

Costs bourn by society that are not accounted for by the producers of the externality

Examples of Negative Externalities

* Air and water pollution
* Noise congestion
* Health concerns from pollution

Positive Externality

When a good/service is consumed and other people benefit from it

Examples of Positive Externalities

* Vaccination
* Mass Transit
* Yard Maintenance

Lack of market competition

When there are not enough suppliers of a good or service which leads to higher prices

Economist Interpretation of “Market Failures”

Occurs when markets do not maximize wealth

* Monopoly
* Public Goods
* Externalities
* Public Goods

Public Good

Goods that are non-rivalrous and non-excludable

* They are available for everyone to use and do not have to be paid for

Public Good Examples

* Public parks


* Basic research
* Fire protection
* Law enforcement
* National defense
* Clean air
* Public health services

Private Goods

Goods that are rivalrous and excludable

* You have to pay for them and once you buy them, they are no longer available for others

Private Goods Examples

* Phones
* Food
* Furniture

Club Goods

Goods that are non-rivalrous and excludable

* You have to pay for them, but once you buy them, they are available for others to buy

Club Goods Examples

* Magazine subscriptions
* Disney Plus

Common Goods

Goods that are rivalrous and non-excludable

* You don’t have to pay for them, but once you use them, they are not available for others

Common Goods Example

* Fish stocks in international water
* Timber

Excludability

You have to pay for a good to be able to use it

Non-rivalrous in consumption

Even if you use a good, it is still available for others to use

Life Expectancy in the US

The US has the lowest life expectancy out of the developed world

Market efficiency

Requires market to be equal to the incremental cost of production and the incremental willingness to pay for the last unit produced

Private Costs

Any cost that a person or firm pays in order to buy or produce goods and services

Private Costs Examples

* Cost of labor
* Materials
* Machinery

Social Cost

Costs estimated form the viewpoint of society, instead of individual stakeholders

* Represents the total burden imposed on the economy

Natural Monolopy

Regulated natural monolopies

* When it makes sense to not have more than one of this firm

Examples of Natural Monolopies

* DG&E
* Southern California Edison
* PG&E
* SoCal Gas

Public Problem

Problems that cannot be solved by private entrepreneurs or are perceived as a responsibility of society to solve

Victor Orban

Prime Minister of Hungary in 2010 who slowly got rid of the country’s democratic system

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* Imposed policies that are hostole to LGBTQ, immigrants and increased the control of the country’s public square by cracking down on the press, academy, and judiciary

Equality of Oppertunity

The idea that everyone is guaranteed the same chance to succeed in life

What type of society is Equality of Opportunity seem in?

A high mobile society

What does low social mobility lead to ?

Low equality of opportunity

Inequality

An uneven distribution of economic aspects

What is rent?

Rent are income earned in excess of what is needed to provide a service or produce a good

Rent Seeking

When people try to pursue rent through changes in policy

Lobbying

When special interest groups contact representatives and their staff members and present information to them

What do lobbyists present to representatives and staff?

* Facts and stories about a problem they want addressed
* Where their groups stands in terms of a solution
* Why their group took those stands

Free Ridership

Someone who wants others to pay for a public good, but not pay into themselves to use the goods regardless

Common Access Good

Rivalrous foods that are non-excludable

* Consumers who are not paying for the goods also have access to them

Crony Capitalism

An economic system characterized by close, mutually advantageous relationships between business leaders and government officials

Capitalist Economy

Means and production are owned by individuals and not the government

* Prices for goods and services are determined by market factors

Keynsianism

When the government creates demand when the economy is shrinking

* Government stimulates demand

Transaction Costs

The costs involved in a market exchange

Homo Economicus

The portrayal of humans being consistently rational and having low self-interest, resulting in them pursuing their subjectively defined ends optimally

Regulations

An official rule

* A standard of minimum requirements that is dictated by local boards, states, etc.

Classical Liberals’ Arguments

Bedrockbelief of classical liberals (since the 17th century) is that the concentration of power in government is the largest threat to personal liberty

Milton Friedman’s views about the government

Believed that too much government intervention leads to less political freedom

* Less government = less risk to personal liberty

Ronald Coase’s Main Arguments and Beliefs

Believed that externalities were caused by weak property rights

John Locke

Father of Liberalism who lived during the transition in England from supremacy in Monarchy to Parlament

* Empiricism - following rational thoughts instead of gods

Moral Hazard

Lack of incentive to guard against risk where one is protected from its consequences

* No risk in business decisions
* Banks that are “too big to fail”

Market-Based Policy Type

Uses markets, prices, and other economic variables to provide incentives for polluters to reduce or eliminate negative externalities

Advantages of Market-Based Policy Types

* Companies are their own best judge of if they are better off emitting or abating
* Overall policy objective met by a number of permits given out
* By allowing companies to pursue that they think for themselves, the social cost of meeting the policy is done at the lowest cost

Direct Regulation Policy Type

When the government limits or supports activity based off of the externality it produces

Direct Regulation Policy Type Advantages/Disadvatages

Advantage: Enforcement which leads to action taken

Disadvantage: No flexibility which means low cost of pollution is not emphasized

Persuasion/Education Policy Type

The process where representatives try to convince other people to change their attitudes or behavior regarding a policy issue

Tax Policy Type

Polluters pay to pollute

Tax Policy Type Advantage/Disadvantage

Advantage: Lowest-cleanup cost so polluters will clean more to save money

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Disadvantage: Optics of “paying to pollute” may hamper success

What do US progressives advocate for?

* Universal healthcare
* Wage equity
* Labor rights
* Economic justice
* Social justice

What do classical liberals and progressives agree on?

Both believe in equal rights for everyone and limited government interference

When is a market in equlibirum?

When prices is adjusted to that quantity demanded equals quantity supplied

* Demand = Supply
* No shortage and no surplus

Why is rent-seeking bad?

Rent-Seekers goal is so obtain financial benefits thought manipulation, even if it causes harm to the economy or society

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Also reduces economic efficiency though the inefficient allocation of resources

Coasian Bargain

A theory that bargaining between individuals or groups over property rights will lead to an optimal and efficiency outcome

Limitations of Coasian Bargains

The costs of organizing can be too high for a bargain to me made

* Transaction costs are too high = a deal won’t be made

Disadvantages of Coasian Bargains

Real world transaction costs are rarely low enough to allow for efficient bargaining

Advantages of Coasian Bargains

Potentially useful way to think about how to best resolve conflicts between competing businesses or other economic uses of limited resources

What does Coase think about “living with externalities?”

He believes that it is sometimes better to live with externalities when the social benefit of having the externality has a better benefit than getting rid of it

* Noise pollution from airports

Polcicy Analysis

The use of reason and evidence to choose the best policy to adopt among other alternatives

* If actions are based on facts and data, then consequences of the action are likely to meet expectations

Steps in a Rational Policy Analysis Process

1. Define and analyze the problem
2. Construct policy alternatives
3. Choose how to evaluate the alternatives
4. Assess the alternatives
5. Pick/recommend the best alternative

Special Interest Groups (SIGs)

Associations or people who are trying to get representatives to support policies that help their cause

* NRA, AARP, American Federation of Teachers, Sierra Club

Is the information given out my SIGs credible?

No because the information tends to be skewed to be in favor of what the group is trying to argue

Lobbying

When special interest groups contact representatives and their staff members to present information about their interest

What do SIGs present to representatives?

* Facts and stories about the problems they want addressed
* Their groups’ stance in terms of solution to the problems
* Why their group has taken these stands

Pros of Lobbying

* Sends information to staff and representatives that they may not know
* Data analysis is often generated by special interest groups conducting or finding studies

Cons of Lobbying

* The data and analysis presented by special interest groups are often biased to get representatives to side with them
* Mold public opinion to fit their narrative

Misinformation

When the public believes that it is okay ot come up with their own alternative facts and reality

When should policy evaluation criteria be used?

When you need to determine whether a policy should be adopted or not

Factors of Policy Evaluation Criteria

1. Effectiveness: Will the policy option work?
2. Efficiency: Do the benefits exceed the cost?
3. Equity: Are the outcomes fair?
4. Political feasibility: Can decision-makers support the proposed actions?

Of the policy evaluation criteria, which are the most important?

Effectiveness and political feasibility

What is the “minimum standard” when it comes to policy evaluation criteria?

Effectiveness

Policy Salience

How well known or noticed a policy is by the general public

Policy Analysis

Using evidence and reason to determine which policy would be the most effective at solving a problem

Steps in a Rational Policy Analysis Process

1. Define and analyze the problem
2. Construct alternative policies
3. Choose how to evaluate alternatives
4. Evaluate the alternatives
5. Determine which alternative to recommend/adopt

Correlation

When two phenomenon seem to be relatedCa

Causality

When one phenomenon causes the otherC

Correlation vs. Causation

Correlation does not equal causation

Left Out Causal Factor

Factors within an experiment or phenomenon that may be the cause of the relationship between the 2 factors

Randomized control trials (RTCs)

When half of participants in a study recieve a treatment, but the other half does not

* The assignment of the treatment/no treatment is random
* The two different groups are identical other than the fact that one of them gets a treatment

Social Experiment

The use of random assessment to test the effects of a social policy

* Contrast between treatment and control groups

Example of a Social Experiment

Randomly assigning people to pen and paper of laptop not taking and then comparing results to see which is the most efficient in increasing test scores