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foundations of political economy lecture notes
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Lecture notes of 46 pages for the course Foundations of Political Economy at UL (grade: 7,0)
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FOUNDATIONS POLITICAL ECON LECTURE WEEK 1 07-02-2024final exam: 60%
tutorial grade: 40%
topics of the lectures
1. what is political economy
2. data literacy
3. normative foundation
4. social dilemma 1: market failures
5. social dilemma 2: government failures
6. institutions - rule of the game
7. growth and productivity
8. inequality
9. poverty
10. trade
11. migration
12. environment and climate change
example political economy: global warming
● Why? because we emit too much carbon relative to what would be socially
desirable
● what to do? reduce emission, by increasing the price of carbon
● how? carbon tax vs. cap and trade
- carbon tax: charge carbon consumption
- cap-and-trade: government issuing emission permits to companies, and allowing
them to trade these allocated permits
1. arguments carbon tax
- economically flexible in anticipating fluctuations of carbon demand
- generate revenue for government → better policy in terms of economic
incentives
2. arguments cap-and-trade
- adoption: big companies (the losers) have stronger concentrated power
and incentive to block carbon tax. cap-and-trades give companies more
control over valuable tradable assets
- sustainability: cap-and-trades creates a new organised group for now
valuable carbon trading, thus has interests to keep cap-and-trade policy
going → better policy in terms of political incentive
,Example political economy: Americans pay 2 or 3 times the world price of sugar
● Why? Decades of government protection
● Only handful winners, but 330 million consumers (losers)
● The cost for consumers is estimated $2bn to $3bn USD per year = economic
inefficiency
● Why 330 million consumers in a democracy, could not just politically remove
trade barriers against a few thousands farmers?
- Because concentrated interests (of sugar farmers) win over diffused interests
(consumers)
- Per consumer, the benefit is just 2 cents - not worth mobilising political power to
remove trade barriers, although in total it costs the economy $2bn to $3bn USD
per year
Political problems
● Global warming = simple problem, impossible politics → exhibits 5 core political
problems. That makes optimal solutions hard to be implemented
1. How to build a consensus to fight global warming - democracy
2. Who will pay for the climate change politics and how to distribute the ‘right’
to pollute - equality
3. What to do with global warming’s most disadvantaged and vulnerable
people? - solidarity
4. What to do to maintain peace and order amidst the threat - security
5. What to do to maximise welfare and sustainability - prosperity
How a political economist works
● Relativity is always very complex and messy to comprehend at once. To
understand how things work or not, we need to structure our thinking and be
willing to simplify in a meaningful way → model
● Major features models
- People are rational: have preferences and pursue those = selfish
- Observe the world as individuals, then build up into groups
- People respond to what others are doing
,FOUNDATIONS POLITICAL ECON LECTURE WEEK 2 14-02-2024
https://ourworldindata.org/charts
From factfulness
● 13 questions about the facts
● Chimpanzees get more questions correct randomly than people who think about
it
● Our answers tend to be in one direction → more negative
● Why?
- We don’t know anything about it
- We have outdated knowledge / worldview
- There is a systematic bias
● Overdramatic worldview
- The gap instinct
- The negatively instinct
- The straight line instinct
- The fear instinct
- The size instinct
- The generalisation instinct
- The destiny instinct
- The single perspective instinct
- The blame instinct
- The urgency instinct
● Rules of thumb
1. Locate majority
2. Expect negative news
3. Imagine bending lines
4. Calculate the risk
5. Check the proportions
6. Question your categories
7. Notice slow changes
8. Use multiple tools
9. Resist pointing fingers
10. Take small steps
● Things become more complicated if we read two related features of the world
- Abe’s celiac disease
1. Positive in a test which is 80% accurate
2. Should Abe eat gluten free for his entire life?
→ need to have more information to have accurate probability: Bayes’ Rule
, Civil resistance
● Violent or nonviolent protest
- Empirical evidence shows that on average governments more frequently
make concession in places that have nonviolent rather dan violent
protests
- But does the nonviolent protest really cause the government to make
concessions?
- There may be an omitted factor here: public support on the movement →
government may be more willing to give concession
● When in doubts?
- Look up the credible data
- Overcome your overdramatic bias
- Think clearly
FOUNDATIONS POLITICAL ECON LECTURE WEEK 3 21-02-2024
What do we mean by a ‘good’ society
● Extreme points
- Hobbesian minimalism = minimal physical harm
- Theocratic maximalism = maximal production of the ‘right’ kind of human
being
● Four important ideal theories (normative standards)
1. Comprehensive liberalism: human freedom (deontology)
2. Utilitarianism: human wellbeing (consequentialism)
3. Distributive justice: equality (deontology)
4. Communitarianism: community and tradition
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