2. MAIN SCHOOLS OF THOUGHT POLITICAL ECONOMY OF GROWTH SECS-P01, CFU 9 Finance and Development academic year 2016-17 2. MAIN SCHOOLS OF THOUGHT Roberto Pasca di Magliano Fondazione Roma Sapienza-Cooperazione Internazionale roberto.pasca@uniroma1.it

Main Schools Classical School (1600/1700, until the second-half of the 1800s) Main authors : Abate Ferdinando Galiani, Adam Smith, Thomas Malthus, David Ricardo, Stuart Mill, Karl Marx Economics is a social science that studies questions such as capital accumulation and income distribution Marginalist or Neo-classical School (since 1870 circa) Main authors : Jevons, Walras, Marshall, von Hajek, Friedman, Say, Solow Philips Economics studies how to obtain the best result in the presence of a given amount of resources available Keynesian School (since 1930 circa) Main authors: Keynes, Harrod, Domar Galbraith, Stiglitz, Dornbusch, Phelps Growth is no longer driven by offer, but rather sustained by demand, even public Growth School and models Main authors: Harrod, Domar, Solow, Lucas, Romer Growth regards only advanced countries as they react to economic variables Development economics (since 1950 circa) Main authors: Lewis, Kuznets, Bauer, Myint, Streeten, Sen, Yunus Developing concerne not only with economic aspects but also with institutional and social ones that have greater importance in developing countries Roberto Pasca di Magliano 2016-17

The State and the Market In conjunction with major economic events that raise the attention of the public opinion, the scientific and political community periodically interrogate themselves on the role of the free market The discussion aims at understanding the extent and the modalities of State intervention in the market mechanism: how to correct it in order to avoid social distorsion, how and where it is possible to faster the growth in presence of lack of private investors At the extremes of this debate, there are on the one hand the supporter of State intervention and on the other the maket oriented economists Roberto Pasca di Magliano 2016-17

Current economic and political vision Liberalism monetarists neo-classical school State intervention keynesian school neo-keynesian school INTERMEDIATE VISION ARE MORE FREQUENT Roberto Pasca di Magliano 2016-17

Comparing the two positions Market supporter argues that: market is the most efficient mechanism market has an automatic capacity to adjust itself by increasing well-being market improve moral qualities (i.e.: meritocracy) Supporter of State intervention sustains that: outcome by market allocations may not be socially acceptable the market, if left unregulated and free to follow its own rules, can produce distortion State intervention can support economy by doing public investment when the private ones are failing Roberto Pasca di Magliano 2016-17

Intermediate Positions (1) In reality, the contrast between market and State is played within the realm comprised between the two extreme positions, most radical in their nature. Hereafter are some major actors: Milton Friedman pure liberal and intellectually reprentative of the School of Chicago and most notable inspiratior, he trusts the free market as a source of economic and social progress and is able to adjust automatically for any temporary distortion Jagdish Bagwati considers economic integration as positive, provided that the distortions be corrected without introducing duties Anthony Giddens considers that the growing liberalization creates problems that globalization may, instead, contribute to solve Lawrence Summers considers that, within the market, the State must insure the reduction of inequalities through fiscal harmonization Roberto Pasca di Magliano 2016-17

Intermediate Positions (2) Amartya Sen & Peter Singer view risks but also positive opportunities in the market dynamics, underlining the necessity for regulation that bring businesses and individuals towards a virtuous path Joseph Stiglitz argues in favour of the importance of the role, not only of the national State but also of the international institutions in regulating the market Edward Luttwak underline the risks that the global market, if it is not properly regulated, might impose upon the workers of the developed world (low salaries, unemployment) and upon the environment John Gray does not believe that the anglo-saxon model of economic liberalism can be applied to systems that are different from the western one historically speaking and advocates for national solutions Paul Krugman (2008 Nobel Prize) underlines the need for global governance to make markets work, and that it be entrusted to the IMF Roberto Pasca di Magliano 2016-17