Comparative Political Economy Exam 1

CPE

the study of politics, society, history, politics, and the economy

Reshaping following WWII

International management of the world economy; Leading economies agreed to a shared set of rule

End of Bretton Woods/Gold Standard

Scaling back US willingness to bear domestic costs of the international economic order; Floating currencies, cruises, and increasing global production

2007-2008 Global Financial Crisis

Questioning of prevailing understandings - how economies work, state/market relations, and regulation of economies

2016 and Austerity

Response to migration, high debt, and economic openness

Logic of markets

channel resources to the most competitive and profitable economic activities; Markets are informal and fluid (change over time)

Logic of governments

exercise authority on behalf of the interest of the public

Market failures and government interventions

Provide public goods (Parks, street lamps, education, security etc.) ;

Regulations to combat negative externalities; Providing information and standardizing reporting; Markets need laws, regulations, and standards

Government Failures

Not subject to the same competitive pressures; Limited bureaucratic consequences; Exceeding project costs; Economic manipulation

State capacity

Enable the translation of policies into binding public policies and remedy market failures; Ability to collect taxes and more generous welfare state; Slower growth rates = decreased state capacity

Rent-seeking

Converting political power to advance government and/or business interests at the expense of the public interest; Distorts market dynamics → reduce competition and lock-in privileges

Economic voting

Economy doing well → better chance of re-election

Principal agent problem

conflict in priorities between the owner of an asset and the person to whom control of the asset has been delegated

Comparative analysis

Provide context for other political economies - without examining different countries cannot know how a given factor contributes; Contribute to classification and developing typologies - help to understand and explain political economic processes; Helps to verify or falsify political economic theories

Theory building

set of logically internal consistent statements that claim to explain an aspect of [political economic events]; Must be based on an account of the nature of the reality it tries to explain;

Ontology - fundamental assumptions made about the nature of the social and political world and nature of causal relationships; Affects where you look for answers and what kind of questions asked; Causation vs. correlation

Greenhouse gas tax and european union

The EU has imposed the world's first carbon tax on imports; Intent: Make products more expensive from producers that aren't paying for their greenhouse gas emissions; Policy couldn't be very effective in reducing the industrial carbon-dioxide emissions;

Labor Market

all transactions in which workers exchange their "labor" for a wage/salary from an employer

Skilled vs. unskilled labor

Skilled workers may leave unions → weakening union cohesion; Higher skilled workers are better off in an uncoordinated union system

Unions and the social welfare state

More collective solidarity within labor → more supportive of gov; Intervention to reduce income inequality; Vital for building a supportive welfare state

Protects less privileged workers and equity for higher earners; Why would national and industry unions promote these policies?

Decline of unions

Electoral losses of Left-wing parties and adoption of neo-liberal policies and appeal to median voters; Revisions to historically strong social safety nets; Technological innovations

Ghent system

afforded significant influence to unions; Unions, not governments, administer unemployment protections

Varieties of capitalism

LME - Liberal Market Economies (LMEs); CME - Coordinated Market Economies (CMEs)

LME

Competitive market arrangements; Formal contracts and arm-length relations; Avoid long-term commitments; Radical innovation - new products and services; Workforce with general skills

CME - Coordinated Market Economies (CMEs)

Coordinated efforts and strategic interactions; Network-based relationships; Trust and long-term commitments; Incremental innovations; Workforce with job and firm specific skills

Wage determination institutions

Decentralized setting ⇒ "leapfrogging" and limit on market power; Centralized setting ⇒ peak negotiations, focus on consequences of wage demands, and improved market power

Labor market policies

Neoliberal argument: job protections, generous unemployment benefits, and higher taxes ⇒ unemployment; Non-general, industry-specific skills benefit more from a generous benefits/replacement rates; General consensus: taxes on labor may increase unemployment; Affect demand for and supply of labor; Pay-roll taxes: decrease hiring/increase workforce downsizing & increase gap between pre- and post-tax incomes

Central banks and independence

Central bank independence (CBI) can offset government policies; Favor right govs and give benefit of the doubt; Central banks → adverse to inflation

Path-dependency

the dependence of economic outcomes on the path of previous outcomes, rather than simply on current conditions

Institutions change

with major events (wars, crises) or as gradual and incremental shifts

Rational electoral cycles

Election manipulations still occur BUT small and less frequent; Incumbents vary in competence; Competence = ability to solve problems and handle the economy efficiently; Competence is private information; Voters view government actions ➝ use to determine competence; Difficult for voters to confirm government claims at time of the announcement

Electoral cycles

Vote maximizing politicians manipulate the economy to win re-election; Politicians control fiscal and monetary policies; Pre-election economic expansion; Increase public spending

Lowering interest rates and taxes

Combination; Post-election: Restrictive policies

Rational Electoral Cycles

Election manipulations still occur BUT small and less frequent; Incumbents vary in competence; Competence = ability to solve problems and handle the economy efficiently; Competence is private information; Voters view government actions ➝ use to determine competence; Difficult for voters to confirm government claims at time of the announcement

Traditional Partisan Cycles

Changes in economic policies are influenced by government partisanship; Change in party control of government = change of economic policy preferences

Rational Partisan Cycles

Fluctuations in policy depend on the level of uncertainty about which party will win the election; Short-lived performance differences (besides inflation); Partisan cycles occur when elections are competitive and economic actors cannot form probabilities about election outcomes; More likely to occur in two party systems

Debt Composition and Electoral Cycles

Two lender types: Banks and bondholders; Banks as debt holders

Small number; high exposure; limited mobility; More likely to provide financial support to prop up the economy due to exposure; Economic backing increases likelihood of political budget cycles; Bondholders as debt holders

Large number; low exposure; high mobility; Less likely to provide financial support to prop up the economy due to exposure and mobility; Economic backing decreases likelihood of political budget cycles

Strategic Timing and Austerity

What is austerity? A policy change that either cuts welfare benefits or raises taxes; How does austerity differ from welfar benefits/social spending? Voters are more likely to pay attention to austerity measure announcements; Governments are careful about announcing austerity policies; Governing parties should favor introducing austerity early in their reign ⇒ allow negative impacts to dissipate before next election; A change in prime minister should introduce austerity earlier ⇒ credibly shift blame to prior government; A minimal winning coalition should introduce austerity