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Econ & heg in debate. Part One . Economics. What is Economics?. The study of how we use limited resources to meet unlimited wants This means that SCARCITY is at the heart of our understanding of modern economics. “Invisible Hand”.

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part one
Part One


what is economics
What is Economics?
  • The study of how we use limited resources to meet unlimited wants
  • This means that SCARCITY is at the heart of our understanding of modern economics
invisible hand
“Invisible Hand”
  • Ascribed to Adam Smith (who was not necessarily a capitalist)
  • Claims that markets direct individual self-interest towards socially desirable outcomes
  • Has become the foundation of free market capitalism
  • Economic system based on the private ownership of the means of production
  • Is driven by the production of goods and services for a profit
  • Types of capitalism
    • Mercantilism
    • Free-market economy
    • Social market economy
    • State-ownership
    • Mixed economy
  • Economic system based on collective ownership of the means of production
  • Is driven by the production of goods and services to meet social needs
  • Covers a variety of sociopolitical systems
    • Anarchism (libertarian socialism)
    • Authoritarian communism
    • Democratic socialism
    • Syndicalism
supply demand
“Supply & Demand”
  • Describes how many markets determine prices
  • If supply increases relative to demand, prices DECLINE…
  • If supply decreases relative to demand, prices INCREASE
  • If demand increases relative to supply, prices INCREASE
  • If demand decreases relative to supply, prices DECREASE
  • Describes the degree to which one economic variable affects others
  • ELASTIC variables exhibit large responses to relatively small changes in another variable
  • INELASTIC variables exhibit small responses to relatively large changes in another variable
gdp gross domestic product
“GDP”—Gross Domestic Product
  • Value of expenditures on final goods and services
  • U.S. GDP has increased steadily—when you hear about “economic growth”, they are usually referencing GDP
  • ‘Recession’ means 6 months (2 quarters) of negative growth
  • GDP as a measure of economic performance can be misleading—non-monetarized labor, shift of non-monetarized labor into the market
  • School of economic thought arising from the ideas of John Maynard Keynes
  • Claims that markets often produce inefficient outcomes that can/should be corrected by government intervention
  • Interventionary instruments include
    • Fiscal policy
    • Monetary policy
  • Debate about effectiveness usually centers on interpreting the effectiveness of FDRs response to the Great Depression
supply side economics
“Supply Side Economics”
  • Theory that economic growth should be stimulated by lowering barriers to production
  • Generally means lowering tax rates on income (individual and corporate) and capital gains
  • Strongly associated with “Ronald Reagan” and “trickle down economics”
the markets
“The Markets”
  • Commodities: exchange, in bulk, of everything from orange juice to petroleum—include both ‘spot’ and ‘futures’ contracts
  • Currency: exchange of different national currencies
  • Debt: issuance and trading of bonds (promises to pay in the future)
  • Equity: issuance and trading of stocks (shares in a company)
  • Describes the ability of a particular group (company, sector, nation) to sell goods in a given market RELATIVE to other groups in the same market
  • Competitiveness expresses profitability, which is directly tied to income, wealth, etc.
  • EXP: Saudi vs. tar sand oil production
  • Describes the efficiency of production
  • Productivity increases when greater output becomes possible with the same input
  • Often couched in terms of “worker productivity”, but is also a measure of technological efficiency
  • Growth rates of 1-2% are good
exchange rates
“Exchange Rates”
  • Rate at which one currency is exchanged for another and/or the value of one nation’s currency in terms of another currency
  • Appreciation: increase in value of a currency relative to others—benefits consumers and hurts producers, ceteris paribus
  • Depreciation: decrease in value of a currency relative to others—benefits producers and hurts consumers, ceteris paribus
  • Currencies typically are pegged, floating, or mixed
employment rate
“Employment Rate”
  • Is usually expressed in terms of ‘unemployment’
  • The official unemployment rate is 7.6%--percentage of the workforce that is seeking employment but is unable to find a position
  • Including the number of people who are no longer actively seeking employment takes the rate up to 15%+
  • ‘Normal’ unemployment levels are between 4 and 6 percent
inflation deflation
“Inflation” & “Deflation”
  • Inflation: rise of general level of prices of goods and services over time
  • Deflation: decline of general level of prices of goods and services over time
  • PREDICTABILITY is key, although economies tend to do best with relatively low, steady inflation (1-4%)
  • Deflation, over any extended period, and hyper-inflation can quickly wreck economies
interest rates
“Interest Rates”
  • Rate at which interest is paid by a borrower to a lender for the use of money
  • Are important because they directly affect consumer spending, the housing market, etc, and thus impact all financial markets
  • Key interest rates are:
    • Federal funds rate (rate for overnight, uncollateralized loans between banks)
    • Prime rate—general FFR+3%
  • Are generally linked to inflation on an inverse basis
  • Stagflation!
  • Consumer confidence: expression of consumer sentiment about the current and future status of the economy
  • Often used as a predictor of future consumer behavior
  • Particularly important because consumer spending makes up over two-thirds of the economy
  • Business confidence: expression of business sentiment about the current and future status of the economy
  • Often used as a predictor of future business behavior (hiring, tech investment)
income in equality
“Income (in)Equality”
  • Expression of the relative distribution of income (and wealth) across the population
  • Is highly variable, both across time and between countries
  • Income inequality is growing rapidly in the U.S.
national debt
National Debt
  • Governments usually borrow through the use of bonds
  • U.S. national debt has two parts
    • Public debt—securities held by non-federal investors ($12T)
    • Inter-Government debt—IOUs held by federal accounts on other federal entities ($5T)
  • Influences interest rates, and more broadly, market sentiment
oil prices
Oil Prices
  • Influence the economy—a little bit
  • Premise 1: economic collapse is inevitable
  • Premise 2: collapse sooner is better than collapse later
part 2
Part 2


major us foreign policy schools
Major US Foreign Policy Schools
  • Realist Maximalists
    • Neoconservatives
    • George H.W.
  • Realist Minimalists
    • Isolationists
    • Offshore balancers (Layne)
  • Liberal Maximalists
    • Wilsonians (spread democracy around the world)
    • Clintonians (power used in the spread of ideals)
  • Liberal/Constructive Minimalists
    • Fukuyama (let markets do their work)
    • Diamond (let freedom do its work politically)
measuring hegemony
Measuring Hegemony
  • How does one define hegemony? Easiest definition is holding a preponderance of power relative to other states—power as a goal of states, a measure of influence, an outcome of victory, control over resources and capabilities
  • Hegemony can be measured along several axes
    • Military power (power projection)—ability to enforce your will through military might
    • Economic power—ability to pay for militaries, bribe allies, exert pressure on other states
    • Cultural power—attractiveness of yoru way of life
    • Ideological power—attractiveness of your ideas
  • The international system is often describes as having “poles,” conglomerations of power around one or more states
    • Apolar (no dominant power)
    • Unipolar (one dominant power)
    • Bipolar (two competing powers)
    • Multipolar (multiple competing powers)
  • Hegemony can also be described in terms of global and regional influence
status of the current system
Status of the Current System
  • Major powers (global influence)
  • Middle powers (global prominence, regional influence)
  • Other states of influence
major powers
Major Powers
  • China
  • European Union
  • France
  • Germany
  • Great Britain
  • Japan
  • Russia
  • United States
middle powers
Middle Powers
  • Australia
  • Brazil
  • Canada
  • Egypt
  • India
  • Indonesia
  • Iran
  • Israel
  • Italy
  • Pakistan
  • South Africa
  • South Korea
  • Turkey
other states of influence
Other States of Influence
  • Oil Producers (Iraq, Kuwait, Saudi, Venezuela)
  • High Population States (Bangladesh, Mexico)
  • Emerging Regional Powers (Ethiopia, Nigeria, Vietnam, Thailand)
  • Major Aid Providers (Nordic states, Netherlands)
is the u s a hegemon
Is the U.S. a Hegemon?
  • Military Power
    • Outspends the world
    • Unmatched power projection capabilities (aircraft, carriers, missiles)
    • Unmatched surveillance capabilities
    • Unmatched technological edge (smart weapons, space weapons, etc)
    • Large population base from which to draw soldiers)
the u s cont d
The U.S. [cont’d]
  • Economic Power
    • One-fourth of the world’s gross product
    • Center of technological innocation
    • Most important banks and stockmarkets
    • Massive corporate power
    • Huge trade flows—mutual dependenceis
    • Magnet for high-skilled labor from other countries
    • Vast personal wealth
the u s cont d1
The U.S. [cont’d]
  • Cultural Influence
    • Media
    • English language (2 billion speakers/learners)
    • Pop culture
the u s cont d2
The U.S. [cont’d]
  • Ideological Influence
    • Democratic attractiveness
    • Free markets
    • Reputation [does Obama fix this?]
sustainability of hegemony
Sustainability of Hegemony
  • Equilibrium theory says that powers will be balanced, and various theories of decline argue that a state can only remain dominant for so long before it loses the economic, military, and/or political capacity to do so
  • That raises the question—who might replace the U.S. as a unipolar power, or challenge the U.S. in a bi- or multi-polar system?
contender 1 european union
Contender #1: European Union
  • Pros
    • High degree of soft power
    • Large population
    • Powerful economy
    • Strong education system
    • Powerful corporations
    • Relatively large collective military
  • Cons
    • Military is weak, out-dated, and relatively poorly trained
    • Lags in miltiary tech development
    • Aging population
    • Lack of unified decisionmaking structures
contender 2 china
Contender #2: China
  • Pros
    • Huge population
    • Surging economy and manufacturing capacity
    • Large military
    • Strong central government
    • Desire to lead/have a presence on the global stage
  • Cons
    • Population strains and population aging
    • Relative lack of tech innovation, esp. in military matters
    • Fragile central government
    • Economic development is subject to outside disruption
    • External resource dependence
    • Lack of military power projection capability
contender 3 japan
Contender #3: Japan
  • Pros
    • Tech innovation
    • Robust economy
    • Access to military tech goodies
  • Cons
    • Tough neighborhood, not popular with neighbors
    • Aging, declining population
    • External resource dependence
    • Inward-focused security culture
contender 4 russia
Contender #4: Russia
  • Pros
    • Big military
    • Huge resource base
    • Continental footprint
    • Strong central government
  • Cons
    • Aging, declining, drunken population
    • Suspicious neighbors
    • Internal factionalism
contender 5 india
Contender #5: India
  • Pros
    • Large number of well-educated persons
    • Huge population (big army!)
  • Cons
    • Population pressures
    • High rates of rural poverty
    • Lack of wealth
other potential powers
Other Potential Powers
  • Brazil
  • Indonesia
  • Iran
  • Nigeria
  • Pakistan