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Summary Economy and Society
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  • Economy And Society
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  • Vrije Universiteit Brussel (VUB)

Very complete document with class notes and course material included Grade in first exam session: 14/20

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  • June 20, 2021
  • 89
  • 2018/2019
  • Summary

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  • economy
  • society
  • social sciences
  • economics
  • economy and society

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  • Vrije Universiteit Brussel (VUB)
  • Social Sciences en Politieke en Sociale Wetenschappen
  • Economy And Society
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ECONOMY‌‌AND‌‌SOCIETY‌‌ ‌
2018-2019‌ ‌
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SOCIAL‌‌SCIENCES‌ ‌ ‌PROF.‌‌VERMEIREN‌ ‌
D.L.Y.‌ ‌


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INTRODUCTION‌ ‌
Crisis‌‌and‌‌inequality‌‌in‌‌democratic‌‌capitalism‌ ‌
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What‌‌is‌‌(comparative)‌‌political‌‌economy?‌ ‌
● As‌‌an‌‌interdisciplinary‌‌subfield‌‌in‌‌social‌‌sciences,‌‌political‌‌economy‌‌studies‌‌the‌‌interaction‌‌between‌‌
political/social‌‌and‌‌economic‌‌dynamics‌‌ ‌
○ Application‌‌of‌‌Lasswell's‌‌definition‌‌of‌‌politics‌‌-‌“‌ Who‌‌gets‌‌what,‌‌when‌‌and‌‌how?”‌‌‌-‌‌to‌‌the‌‌economy‌
● Impact‌‌of‌‌political/social‌‌events‌‌on‌‌the‌‌economy‌ ‌
○ Global‌‌financial‌‌crisis‌‌2008‌ ‌
○ Rising‌‌inequality‌‌in‌‌the‌‌western‌‌world‌‌ ‌
● Impact‌‌of‌‌economic‌‌events‌‌on‌‌politics‌‌and‌‌society‌‌ ‌
○ Rise‌‌in‌‌populism‌‌ ‌

Political‌‌economy‌‌of‌‌democratic‌‌capitalism‌‌ ‌

Two‌‌central‌‌challenges‌ ‌
1. Rising‌‌inequality‌‌ ‌
2. Economic‌‌instability‌ ‌

Organization‌‌of‌‌Economic‌‌Cooperation‌‌and‌‌Development‌‌(OECD)‌‌and‌‌its‌‌principles‌‌of‌‌liberal‌‌democracy‌ ‌
● Free‌‌elections,‌‌press,‌‌separation‌‌of‌‌powers,‌‌rule‌‌of‌‌law‌ ‌
● Capitalist‌‌countries,‌‌economy‌‌structured‌‌by‌‌principles‌‌of‌‌private‌‌ownership‌‌of‌‌enterprises‌‌and‌‌private‌‌
markets‌ ‌


● Democratic‌‌capitalism‌‌ ‌
○ Fully‌‌established‌‌after‌‌Second‌‌World‌‌War‌‌in‌‌North‌‌America,‌‌Western‌‌Europe‌‌and‌‌Japan‌ ‌
○ Voting‌‌rights‌‌extended‌‌to‌‌women‌ ‌
○ ⇒
Worked‌‌well‌‌until‌‌1970s‌‌ ‌‌the‌‌“Golden‌‌Age”‌‌of‌‌capitalism‌‌ ‌

● Crisis‌‌of‌‌2007-2009‌ ‌
○ Deepest‌‌financial‌‌crisis‌‌since‌‌Great‌‌Depression‌‌of‌‌1930s‌ ‌
○ Capitalism‌‌in‌‌rich‌‌democratic‌‌countries‌‌experienced‌‌threefold‌‌crisis‌‌ ‌
1. Banking‌‌crisis‌ ‌
● Private‌‌banks‌‌extended‌‌too‌‌much‌‌credit‌‌to‌‌households,‌‌creating‌‌bubbles‌‌in‌‌housing‌‌
markets‌ ‌
● Bubbles‌‌collapsed,‌‌many‌‌US‌‌and‌‌European‌‌banks‌‌had‌‌to‌‌be‌‌rescued‌‌from‌‌
bankruptcy‌‌by‌‌their‌‌governments‌‌ ‌
2. Crisis‌‌of‌‌public‌‌finances‌ ‌
● Banking‌‌crisis‌‌evolved‌‌into‌‌a‌‌fiscal‌‌crisis‌‌because‌‌of‌‌the‌‌rising‌‌levels‌‌of‌‌government‌‌
debt‌‌(1970s)‌‌and‌‌the‌‌additional‌‌borrowing‌‌(2008)‌‌to‌‌save‌‌the‌‌banking‌‌industry‌ ‌
● ⇒
Regain‌‌“confidence‌‌in‌‌the‌‌markets”‌‌ ‌‌harsh‌‌fiscal‌‌austerity‌‌policies‌‌on‌‌citizens‌ ‌
1‌ ‌

,‌

3. Crisis‌‌of‌‌the‌‌“real‌‌economy”‌‌‌(part‌‌of‌‌economy‌‌that‌‌is‌‌concerned‌‌with‌‌the‌‌actual‌‌production‌‌
of‌‌goods‌‌and‌‌services‌‌rather‌‌than‌‌the‌‌part‌‌that‌‌consists‌‌of‌‌trading‌‌in‌‌financial‌‌markets)‌ ‌
● Harsh‌‌fiscal‌‌austerity‌‌policies‌‌resulted‌‌into‌‌crisis‌‌of‌‌the‌‌real‌‌economy‌‌ ‌
● Low‌‌economic‌‌growth‌‌(even‌‌stagnation)‌‌and‌‌in‌‌some‌‌countries‌‌high‌‌
unemployment‌ ‌

● Crises‌‌closely‌‌connected‌‌to‌‌growing‌‌levels‌‌of‌‌income‌‌and‌‌wealth‌‌inequality‌ ‌
○ 2016:‌‌share‌‌of‌‌total‌‌national‌‌income‌‌accounted‌‌for‌‌by‌‌just‌‌that‌‌nation’s‌‌top‌‌10%‌‌earners:‌‌37%‌‌in‌‌
Europe,‌‌47%‌‌in‌‌North‌‌America‌ ‌
○ Since‌‌1980:‌‌income‌‌inequality‌‌rapidly‌‌increased‌‌in‌‌north‌‌America,‌‌more‌‌moderately‌‌in‌‌Europe‌ ‌
○ Marked‌‌end‌‌of‌‌post-war‌‌Golden‌‌Age‌‌of‌‌egalitarian‌‌capitalism‌ ‌
○ Lower‌‌and‌‌middle-class‌‌consumers‌‌in‌‌US‌‌and‌‌other‌‌Anglo-Saxon‌‌countries:‌‌borrow‌‌to‌‌maintain‌‌and‌‌
finance‌‌their‌‌consumption‌‌patterns‌‌(stagnating‌‌incomes)‌ ‌
○ Rise‌‌of‌‌inequality‌‌contributed‌‌to‌‌the‌‌Global‌‌Financial‌‌Crisis‌‌of‌‌2007-2009‌‌ ‌
○ Fiscal‌‌austerity‌‌tends‌‌to‌‌reinforce‌‌these‌‌dynamics‌‌of‌‌inequality‌‌by‌‌cutting‌‌spending‌‌on‌‌social‌‌
programs‌‌that‌‌primarily‌‌benefit‌‌the‌‌bottom‌‌half‌‌of‌‌the‌‌income‌‌distribution‌ ‌
○ High‌‌levels‌‌of‌‌inequality‌‌can‌‌be‌‌a‌‌cause‌‌of‌‌low‌‌economic‌‌growth‌‌or‌‌even‌‌“secular‌‌stagnation”‌‌as‌‌even‌‌
mainstream‌‌economists‌‌at‌‌the‌‌OECD‌‌and‌‌International‌‌Monetary‌‌Fund‌‌have‌‌increasingly‌‌
acknowledged‌ ‌

● Inequality‌‌called‌‌one‌‌of‌‌the‌‌main‌‌threats‌‌to‌‌the‌‌world‌‌economy‌ ‌
○ By‌‌World‌‌Economic‌‌Forum‌‌(international‌‌body‌‌bringing‌‌together‌‌the‌‌global‌‌business‌‌and‌‌political‌‌
elites‌‌in‌‌annual‌‌meeting)‌ ‌
○ Inequality‌‌has‌‌important‌‌political‌‌repercussions‌‌(could‌‌endanger‌‌liberal‌‌democracy‌‌itself)‌ ‌
■ Citizens‌‌more‌‌critical‌‌of‌‌their‌‌political‌‌leaders‌ ‌
■ Cynical‌‌about‌‌value‌‌of‌‌democracy‌‌as‌‌political‌‌system,‌‌less‌‌hopeful‌‌that‌‌anything‌‌they‌‌do‌‌
might‌‌influence‌‌public‌‌policy‌‌and‌‌more‌‌willing‌‌to‌‌express‌‌support‌‌for‌‌authoritarian‌‌
alternatives‌ ‌




Increasing‌‌votes‌‌to‌‌populist‌‌parties‌ ‌


All‌‌generations‌‌more‌‌critical,‌‌
Younger‌‌people‌‌more‌‌critical‌‌ especially‌‌in‌‌the‌‌US‌ ‌
towards‌‌benefits‌‌of‌‌democracy‌ ‌
‌


2‌ ‌

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1.‌‌NEOCLASSICAL‌‌ECONOMICS‌‌AND‌‌ITS‌‌FAILURES‌ ‌

● Neoclassical‌‌economics‌‌dominant‌‌approach‌‌to‌‌study‌‌the‌‌economy‌‌in‌‌our‌‌contemporary‌‌society‌ ‌
○ Over‌‌last‌‌50‌‌years:‌‌increasingly‌‌formalistic,‌‌developing‌‌mathematical‌‌models‌‌and‌‌quantitative‌‌
methods‌‌that‌‌are‌‌completely‌‌detached‌‌from‌‌the‌‌social,‌‌political‌‌and‌‌historical‌‌context‌‌of‌‌economic‌‌
dynamics‌‌in‌‌the‌‌real‌‌world‌ ‌

● Global‌‌Financial‌‌Crisis‌‌exposed‌‌failures‌ ‌
○ Objective‌‌in‌‌social‌‌sciences:‌‌understanding‌‌and‌‌deepening‌‌knowledge‌‌of‌‌GFC‌‌and‌‌longer‌‌term‌‌causes‌‌
and‌‌consequences‌ ‌
○ Neoclassical‌‌economics‌‌failed‌‌reaching‌‌these‌‌objectives‌ ‌

● Assumptions‌‌behind‌‌its‌‌mathematical‌‌models‌‌often‌‌simplistic‌‌and‌‌unrealistic‌ ‌
○ “Homo‌‌economicus”‌‌‌=‌‌individuals‌‌are‌‌seen‌‌as‌‌“rational”‌‌and‌‌self-interested‌‌actors‌‌who‌‌maximize‌‌
their‌‌utility‌‌by‌‌making‌‌decisions‌‌that‌‌are‌‌based‌‌on‌‌full‌‌information‌ ‌
○ Free‌‌markets‌‌balance‌‌supply‌‌and‌‌demand‌‌in‌‌the‌‌long-term‌‌and‌‌are‌‌self-adjusting‌ ‌
⇒‌‌Response:‌‌models‌‌are‌‌there‌‌to‌‌predict‌‌economic‌‌behaviour‌‌rather‌‌than‌‌formulating‌‌realistic‌‌assumptions‌ ‌
● Neoclassical‌‌economists‌‌are‌‌bad‌‌predictors‌ ‌
○ Take‌‌no‌‌non-economic‌‌factors‌‌in‌‌account‌‌that‌‌are‌‌very‌‌important‌ ‌
○ E.g.‌‌power‌‌and‌‌politics‌→
‌ ‌‌think‌‌economy‌‌can‌‌be‌‌separated‌‌from‌‌relations‌‌of‌‌power‌‌and‌‌politics‌‌ ‌


2.‌‌THE‌‌PROBLÉMATIQUE‌‌OF‌‌RISING‌‌INEQUALITY‌‌ ‌

● How‌‌is‌‌inequality‌‌measured?‌‌ ‌
○ Gini-coefficient‌‌in‌‌income‌‌inequality‌ ‌
○ Share‌‌of‌‌different‌‌groups‌‌in‌‌national‌‌income‌‌and‌‌national‌‌wealth‌‌ ‌
○ Labour‌‌and‌‌capital‌‌share‌‌in‌‌national‌‌income‌‌ ‌
● How‌‌can‌‌it‌‌be‌‌explained?‌ ‌
○ Why‌‌main‌‌neoclassical‌‌interpretation‌‌fails‌‌to‌‌provide‌‌explanation‌‌of‌‌rise‌‌in‌‌inequality‌‌in‌‌the‌‌advanced‌‌
capitalist‌‌world‌‌ ‌
○ Role‌‌of‌‌government‌‌policies‌‌(discussed‌‌in‌‌Chapters‌‌2-4)‌ ‌
● Why‌‌does‌‌it‌‌matter?‌ ‌
○ Connection‌‌to‌‌economic‌‌instability‌‌and‌‌financialization‌ ‌
2.1.‌‌HOW‌‌IS‌‌IT‌‌MEASURED?‌ ‌


2.1.1.‌‌GINI‌‌INDEX‌‌OF‌‌DISPOSABLE‌‌INCOME‌‌INEQUALITY‌ ‌

● Most‌‌often-used‌‌measure‌‌of‌‌inequality‌‌before‌‌Thomas‌‌Piketty’s‌C
‌ apital‌‌in‌‌the‌‌21st‌‌Century‌‌‌(2014)‌ ‌
● Abstract‌‌measure‌‌of‌‌income‌‌distribution:‌‌ranging‌‌from‌‌0‌‌(perfect‌‌equality)‌‌to‌‌1‌‌(complete‌‌inequality)‌ ‌
● Share‌‌of‌‌different‌‌income‌‌groups‌‌(e‌ .g.‌‌top‌‌1%‌)‌‌in‌‌national‌‌income‌‌ ‌
○ Data‌‌of‌‌Thomas‌‌Piketty‌‌and‌‌colleagues‌ ‌


3‌ ‌

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