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Cohen and DeLong.....

Worried about China

International Economic stability and peace through openness, integration.

There is imbalances in our trade with China, which could lead to potential economic danger.


What is International Political Economy? What is inflation?

When money, is cheap, people are careless

Inflation means too much money circulating throughout the economy

US economy was increasingly de-regulated, but ultimately the problem is too much circulation.


What are sovereign wealth funds?

Countries that have too much money, invest it. US is still the safest place to invest.


What is the US National Debt?

We produce 16 Billion in GDP.

Our debt is 100% of our GDP.


What is recession?

Means people start to retrench, hold back, keeping the economy from moving. The government as a result has to pump money into the economy when the private sector will not.


What is the end of Neoliberalism?

End of a period where you rollback the size of the government


What is state capitalism?

Emerged from China, state led growth, where state gets behind industries, helps them grow. Has delivered huge growth rates


What did Abe Lincoln say about the role of government?

The role of government is to elevate the people


Why do nations trade?

Nations trade because of factor endowments and predispositions that allow them to produce something very well, becoming specialized.


What is the basis of trade?

The basis of trade arises because of national differences (climate, natural reasons) in the relative supply of factor endowments and the domestic price ratios that result from efficiencies in production.


What is specialization?

Specialization- putting emphasis on the production of this product, maximizing efficiency


What is efficiency?

Efficiency- produce an item with little expenditure, maximizing profit


What is comparative advantage? What does it lead to?

A country has a comparative advantage over another if in producing a commodity it can do so at a relatively lower opportunity cost in terms of the foregone alternative commodities that could otherwise be produced.

Comparative advantage, leads to absolute cost


What is relative cost?

Lowest cost a country can have compared with producers in other countries


What is the logic of relative cost?

The greater the cost advantage, the greater revenue can be generated.

Also works the other way, the lower the cost disadvantage, the better.


What is opportunity cost?

In production, the real value of resources used in the most desirable sector of production in light of alternatives.


What is Rodrik interested in?

Rodrik is interested in the govt. giving assistance to folks, like in SW VA, to train them in a new sector, give them unemployment benefits.

Govt. makes an investment in producing new industries.


Who was Adam Smith and how did he relate to the division of labor?

Smith specified how the factor endowment trade theory could work to the benefit of ALL nations by exploiting international differences in costs of production and the prices of different products

Adam Smith lived in Edinburgh with his mother, loves to tell stories, loved to write (Wealth of Nations), loved to visit factories, loved to get his hands dirty

Smith is a liberal, in a classical sense: he is interested in limiting the power of the state and the church over peoples lives.

Gives an example of how division of labor helps to increase productivity, example of workers producing 48,000 pins in a collaborative effort, compared to perhaps 20 pins if done individually.

Adam Smith worried about the division of labor becoming extremely mundane tasks, which would dull workers. He questioned what their influence in politics would be, what they would be good for other than the task that they were specially trained for.


What is the proper role of government in economic policy making?

China’s economy or their government, isn’t really “communist”, it is just the title we give it, it is arguably more capitalist than the US.

Nations/countries/economies prioritize to make certain ends, hopefully to benefit everyone

Countries should specify as well as diversify.

Government can sometimes affect economies through policies
Ex. Virginia has less jobs for solar panel installation because of laws set in place.
NC and MD have more jobs in this sector because they do not have the same laws.


What does trade do?

Trust produce highest levels of productivity growth


how does trade relate to the size of governments?

Rodrik says countries that are dependent and open to trade have larger government:
This is because trade needs to be more regulated.
More efficient.
People trust trade that is regulated.

Rodrik argues, if US wants to increase trade as % of GDP, they will have to increase the size of government.


What is the division of labor?

“the allocation of tasks among workers such that each engages in tasks carried out the most efficiently. Division of labor promotes worker specialization, thereby raising overall labor productivity”


How do surplus and productivity relate?

Surplus is the key to the division of labor.
Productivity leads to surpluses


What is capital deepening?

Investments in new technologies—faster, more efficient equipment, factories, distribution facilities, etc. Such investments require significant capital outlays.


What is economy of scale?

A massive integrated sector which promotes enormous efficiencies in industries in which large-scale production, or long production runs, dramatically reduce costs. The gains from economies of scale make products cheaper and thus more competitive in world markets.

…thus refers to the growth resulting from the expansion of the scale of productive capacity of a firm or industry, leading to large increases in output and decreases in cost of production


What is the Balance of Trade?

The balance of trade is the difference between the monetary value of exports and imports in an economy over a period of time. A positive balance of trade is known as a trade surplus and occurs when the value of exports is higher than that of imports; a negative balance of trade is known as a trade deficit or a trade gap.

“many of the economic evils of our time are the fruits of risk, uncertainty, and ignorance. It is because particular individuals, fortunate in situation or in abilities, are able to take advantage of uncertainty and ignorance, and also because for the same reason big business is often a lottery, that great inequalities of wealth come about and these same factors are also the cause of the unemployment


How do productivity gains and technological innovation relate?

productivity gains happen when markets are expanding
technological innovation is a result of this phenomena


What is liberalism?

Theory reflecting the ideal that the individuals should be understood as a free, independent, autonomous, rights-bearing agent who is free to choose their own life’s course. Liberalism thus refers to the relaxation or removal of the states and the divine’s power over the person’s actions and life pursuits.


What is Laissez-Faire?

Freeing the economy from government interference.

Laissez faire is the ideological doctrine behind the liberal free trade economy


What does Adam Smith say about mercantilism?

“the engine by which mercantilist systems proposed to enrich every country is the encouragement of exportation and the discouragement of importation”

“The end result is to discourage international trade and investment, everyone wants to be a producer and no one wants to be a consumer”

farmers tend to be the most protectionist in an economy

"Consumption is the sole end and purpose of all production, and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that is would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce” (wealth of nations, p. 715).