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Summary of Economics For Political Scientists
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Summary of Economics For Political Scientists
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1. Comment14 December 2019 at 12:55:54
E.g. Trump’s trade war
2. Comment
14 December 2019 at 12:55:38
Psychological factors
3. Comment
14 December 2019 at 12:59:36
Measured by government
statisticians
4. Comment
14 December 2019 at 12:57:22
Economics for Political Scientists
Usually
5. Comment
14 December 2019 at 13:06:12
GDP
Part 1 - Capitalism
6. Comment
14 December 2019 at 13:06:19 Economics: study of human behavior (under scarcity), focus on economic incentives and
Consumer spending on finished outcomes
goods • Microeconomics: study of individual incentives
• Macroeconomics: study of aggregated outcomes
7. Comment
14 December 2019 at 13:06:35 Key concepts:
Investment (only capital goods) • Nominal GDP: measured in current currency amount (not adjusted to inflation)
• Real (constant) GDP: adjusted for inflation, allows comparisons over time
8. Comment • Purchasing power parity: adjusted for difference in currency + what currency can buy, allows
14 December 2019 at 13:06:55
comparison between countries
Government spending on
• Consumer price index (CPI)
finished goods
Often confused for each other → misrepresent reality
9. Comment
14 December 2019 at 13:07:14
Economic growth: increases in natural resource discovery, physical capital/infrastructure
Exports
population, human capital, technology, law
1 2 • Short term causes: external shocks, animal spirits, fiscal policy
10. Comment
14 December 2019 at 13:07:22
3 4 GDP: measures market value of all finished goods produced within a country (annually); not
Imports
including imports, including exports
• Finished goods: will not be sold again as part of another good (e.g. cake)
11. Comment
14 December 2019 at 14:19:59 • Intermediate goods: will be used to make something else (e.g. eggs)
Arose from social unrest • Capital goods: used in production process but isn’t part of finished good itself (e.g. tools)
• Acquiring capital: poverty → affluence
12. Comment
14 December 2019 at 13:14:01 5 10 Y = C + I + G + (X - M)
Other systems: feudal,
communist, mercantilist (statist) GDP per capita: GDP/population (measure of wealth)
• Only measures material value, but this is correlated with development (hence a good indicator)
In reality, there are no pure • Weakness: does not measure inequality
economic systems; vary widely
Hockeystick diagram: graph that shows rapid, sustained growth in average living standards since
13. Comment 1700
14 December 2019 at 14:13:51 • Number of people living in extreme poverty has significantly decreased since the 1970s.
And when Berlin Wall falls, it • Interstate and intrastate inequality increased in past 1000 years
adopts capitalism and becomes 11 • But since WWI, less intrastate inequality (due to democracy/suffrage)
wealthy • Growth due to industrial revolution
12 • Economic growth correlated with the adoption of capitalist systems
13 • Experiment: Berlin (West = capitalist → wealthy, East = communist → poor)
• Poor capitalist countries due to factors such as corruption
,14. Comment
14 December 2019 at 13:16:56
Gains of labor protected from
confiscation by government or
others → more incentive to work
15. Comment
14 December 2019 at 13:17:55
Allocation of goods and services
determined by buying/selling, not
government
Key features: reciprocated,
voluntary, competition
16. Comment 14 16 Capitalism: economic system where private property, markets and firms play an important role
14 December 2019 at 13:18:48 • Based on individualism and economic incentives
Business organization that pays • Only system where elite membership depends on sustained economic performance
wages to employ people and 17 • Invisible hand: by pursuing self-interest, society is promoted (Adam Smith)
purchase inputs, to participate in 18 • Increases pace of change:
market and make a profit 19 20 • Specialization/division of labor → increased gains
21 • Encourages technological innovation (due to incentives and competition)
17. Comment • Entrepreneur: first adopter of new technology
14 December 2019 at 14:03:24 • Decreases level of input required for unit of output
More so than trying to actively • Produces winners and losers → inequality
promote society 22 • When governments interfere to protect losers → creative destruction????
23 • Democracy → capitalism (people’s choice)
18. Comment • Question: which came first?
14 December 2019 at 14:10:56 24 • Political institutions address economic challenges through non-market means
Includes both growth and death • Conditions of success:
(profit is essential) 25 • Economic: secure private property, competitive markets, non-discrimination in firm ownership
• Political: good legal system, prevent monopolies, social welfare
19. Comment
14 December 2019 at 13:23:42 Readings:
Producing more narrow range of • Economy, Society, and Public Policy (The CORE Team), chapter 1
goods/services than what you
consume, acquiring the rest
through trade
20. Comment
14 December 2019 at 13:24:23
Specialization on individual level
Historically:
- Direct government
requisitioning and redistribution
(e.g. US during WWII)
- Gifts/voluntary sharing (e.g.
families, hunt-gatherer societies)
21. Comment
14 December 2019 at 14:05:00
Machinery, equipment, and
devices developed using
scientific knowledge
(converts input into output)
22. Comment
14 December 2019 at 14:17:01
Lessen competition
23. Comment
14 December 2019 at 13:45:11
Equal political power to all
citizens + elected leaders
24. Comment
14 December 2019 at 14:04:10
Protect from external enemies,
provide welfare
25. Comment
14 December 2019 at 14:16:33
No “creative destruction”?????
, 26. Comment
14 December 2019 at 14:31:03
“Irrationality” usually due to
incomplete understanding of
incentives
27. Comment
14 December 2019 at 14:31:55
Don’t make decisions in isolation,
but in relation to others
Previously, seen only to respond
to supply/demand (no thinking
ahead)
28. Comment
14 December 2019 at 14:38:39 Part 2 - Game Theory
Self perpetuating situation. A
state or outcome that does not Economics involves interaction → opportunity (gains) + conflict (losses)
change unless outside forces a
change
Game theory: analytical tool for examining strategic interaction
26 27 • Assumptions: individuals are rational + act strategically
29. Comment
• Elements: players, feasible strategies, information and payoffs
14 December 2019 at 14:43:53
• Payoff matrix: table of payoffs associated with every possible combination of strategies for the
Everyone benefits from absence
two players
of nuclear weapons, but potential
• Best response: strategy which will yield highest payoff, given the other player’s decision
costs are too high to stop
• Dominant strategy: strategy which will yield highest payoff, regardless of other player (doesn’t
always exist)
30. Comment
14 December 2019 at 14:47:28
28 • Dominant strategy equilibrium: outcome in which every player has used their dominant
strategy
Can’t prevent consumption by
others • Self-interest can promote society (invisible hand), but not always
• External effects: costs/benefits incurred by individuals not involved in production/
consumption of product
31. Comment
14 December 2019 at 14:47:51 • Prisoner’s/social dilemma: individual incentives undermine collective interest to cooperate
Consumption by one doesn’t 29 (e.g. nuclear arms race); predicted outcome ≠ best feasible outcome
hinder consumption by others • Not due to malice, but due to poor incentive structures
32. Comment 30 31 Public goods: socially desirable products that are non-excludable and non-rival in consumption
14 December 2019 at 14:48:51 32 • Examples: national defense, clean air/water
Not simply “environment”; must • Hindered by collective action problems (social dilemmas)
be produced/maintained?? 33 • Players have incentive to free ride (less costly than contribution)
• More players = more difficult (vs two-player games)
33. Comment • Reason for government existence
14 December 2019 at 14:53:06
Benefitting from contributions of 34 Tragedy of the commons: collective action problems concerning common property goods
others (to a cooperative project) • Economic incentives → overexploitation of common property goods (e.g. overfishing)
without contributing oneself • Solutions:
35 • Repeated interaction: x
34. Comment 36 • Fewer players (easier to monitor defection, greater cost of defection)
14 December 2019 at 14:57:01 • Institutions (government interference)
Non-excludable
Rival in consumption Nash equilibrium: a set of strategies where each player’s strategy is the best response to other
players’ strategies
E.g. public land, air, water • Does not mean the best option; Nash equilibrium can involve everyone being worse off (but still
best response to everyone else)
35. Comment 37 • When there are multiple Nash equilibria: bargaining
14 December 2019 at 15:22:03 • Conflict of interest: preference for different Nash equilibria
As opposed to one-off rounds
Deviations from rationality:
36. Comment 38 • Social preferences:
14 December 2019 at 17:39:11 39 • Altruism
Hence players choose not to • Inequality aversion
defect • Biases:
37. Comment
14 December 2019 at 17:43:41
Coercion, agenda-setting,
outside options
38. Comment
14 December 2019 at 17:46:10
Caring about what happens to
other people
39. Comment
14 December 2019 at 17:46:22
Difficult to distinguish from
reputation building
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