Economics

 The study of how we use limited resources to meet unlimited wants  This means that SCARCITY is at the heart of our understanding of modern economics

 Ascribed to Adam Smith (who was not necessarily a capitalist)  Claims that markets direct individual self- interest towards socially desirable outcomes  Has become the foundation of free market capitalism

 Economic system based on the private ownership of the means of production  Is driven by the production of goods and services for a profit  Types of capitalism  Mercantilism  Free-market economy  Social market economy  State-ownership  Mixed economy

 Economic system based on collective ownership of the means of production  Is driven by the production of goods and services to meet social needs  Covers a variety of sociopolitical systems  Anarchism (libertarian socialism)  Authoritarian communism  Democratic socialism  Syndicalism

 Describes how many markets determine prices  If supply increases relative to demand, prices DECLINE…  If supply decreases relative to demand, prices INCREASE  If demand increases relative to supply, prices INCREASE  If demand decreases relative to supply, prices DECREASE

 Describes the degree to which one economic variable affects others  ELASTIC variables exhibit large responses to relatively small changes in another variable  INELASTIC variables exhibit small responses to relatively large changes in another variable

 Value of expenditures on final goods and services  U.S. GDP has increased steadily—when you hear about “economic growth”, they are usually referencing GDP  ‘Recession’ means 6 months (2 quarters) of negative growth  GDP as a measure of economic performance can be misleading—non-monetarized labor, shift of non-monetarized labor into the market

 School of economic thought arising from the ideas of John Maynard Keynes  Claims that markets often produce inefficient outcomes that can/should be corrected by government intervention  Interventionary instruments include  Fiscal policy  Monetary policy  Debate about effectiveness usually centers on interpreting the effectiveness of FDRs response to the Great Depression

 Theory that economic growth should be stimulated by lowering barriers to production  Generally means lowering tax rates on income (individual and corporate) and capital gains  Strongly associated with “Ronald Reagan” and “trickle down economics”

 Commodities: exchange, in bulk, of everything from orange juice to petroleum— include both ‘spot’ and ‘futures’ contracts  Currency: exchange of different national currencies  Debt: issuance and trading of bonds (promises to pay in the future)  Equity: issuance and trading of stocks (shares in a company)

 Describes the ability of a particular group (company, sector, nation) to sell goods in a given market RELATIVE to other groups in the same market  Competitiveness expresses profitability, which is directly tied to income, wealth, etc.  EXP: Saudi vs. tar sand oil production

 Describes the efficiency of production  Productivity increases when greater output becomes possible with the same input  Often couched in terms of “worker productivity”, but is also a measure of technological efficiency  Growth rates of 1-2% are good

 Rate at which one currency is exchanged for another and/or the value of one nation’s currency in terms of another currency  Appreciation: increase in value of a currency relative to others—benefits consumers and hurts producers, ceteris paribus  Depreciation: decrease in value of a currency relative to others—benefits producers and hurts consumers, ceteris paribus  Currencies typically are pegged, floating, or mixed

 Is usually expressed in terms of ‘unemployment’  The official unemployment rate is 7.6%-- percentage of the workforce that is seeking employment but is unable to find a position  Including the number of people who are no longer actively seeking employment takes the rate up to 15%+  ‘Normal’ unemployment levels are between 4 and 6 percent

 Inflation: rise of general level of prices of goods and services over time  Deflation: decline of general level of prices of goods and services over time  PREDICTABILITY is key, although economies tend to do best with relatively low, steady inflation (1-4%)  Deflation, over any extended period, and hyper-inflation can quickly wreck economies

 Rate at which interest is paid by a borrower to a lender for the use of money  Are important because they directly affect consumer spending, the housing market, etc, and thus impact all financial markets  Key interest rates are:  Federal funds rate (rate for overnight, uncollateralized loans between banks)  Prime rate—general FFR+3%  Are generally linked to inflation on an inverse basis  Stagflation!

 Consumer confidence: expression of consumer sentiment about the current and future status of the economy  Often used as a predictor of future consumer behavior  Particularly important because consumer spending makes up over two-thirds of the economy  Business confidence: expression of business sentiment about the current and future status of the economy  Often used as a predictor of future business behavior (hiring, tech investment)

 Expression of the relative distribution of income (and wealth) across the population  Is highly variable, both across time and between countries  Income inequality is growing rapidly in the U.S.

 Governments usually borrow through the use of bonds  U.S. national debt has two parts  Public debt—securities held by non-federal investors ($12T)  Inter-Government debt—IOUs held by federal accounts on other federal entities ($5T)  Influences interest rates, and more broadly, market sentiment

 Influence the economy—a little bit

 Premise 1: economic collapse is inevitable  Premise 2: collapse sooner is better than collapse later

Leadership

 Realist Maximalists Neoconservatives George H.W.  Realist Minimalists Isolationists Offshore balancers (Layne)  Liberal Maximalists Wilsonians (spread democracy around the world) Clintonians (power used in the spread of ideals)  Liberal/Constructive Minimalists Fukuyama (let markets do their work) Diamond (let freedom do its work politically)

 How does one define hegemony? Easiest definition is holding a preponderance of power relative to other states—power as a goal of states, a measure of influence, an outcome of victory, control over resources and capabilities  Hegemony can be measured along several axes  Military power (power projection)—ability to enforce your will through military might  Economic power—ability to pay for militaries, bribe allies, exert pressure on other states  Cultural power—attractiveness of yoru way of life  Ideological power—attractiveness of your ideas

 The international system is often describes as having “poles,” conglomerations of power around one or more states  Apolar (no dominant power)  Unipolar (one dominant power)  Bipolar (two competing powers)  Multipolar (multiple competing powers)  Hegemony can also be described in terms of global and regional influence

 Major powers (global influence)  Middle powers (global prominence, regional influence)  Other states of influence

 China  European Union  France  Germany  Great Britain  Japan  Russia  United States

 Australia  Brazil  Canada  Egypt  India  Indonesia  Iran  Israel  Italy  Pakistan  South Africa  South Korea  Turkey

 Oil Producers (Iraq, Kuwait, Saudi, Venezuela)  High Population States (Bangladesh, Mexico)  Emerging Regional Powers (Ethiopia, Nigeria, Vietnam, Thailand)  Major Aid Providers (Nordic states, Netherlands)

 Military Power  Outspends the world  Unmatched power projection capabilities (aircraft, carriers, missiles)  Unmatched surveillance capabilities  Unmatched technological edge (smart weapons, space weapons, etc)  Large population base from which to draw soldiers)

 Economic Power  One-fourth of the world’s gross product  Center of technological innocation  Most important banks and stockmarkets  Massive corporate power  Huge trade flows—mutual dependenceis  Magnet for high-skilled labor from other countries  Vast personal wealth

 Cultural Influence  Media  English language (2 billion speakers/learners)  Pop culture

 Ideological Influence  Democratic attractiveness  Free markets  Reputation [does Obama fix this?]

 Equilibrium theory says that powers will be balanced, and various theories of decline argue that a state can only remain dominant for so long before it loses the economic, military, and/or political capacity to do so  That raises the question—who might replace the U.S. as a unipolar power, or challenge the U.S. in a bi- or multi-polar system?

 Pros  High degree of soft power  Large population  Powerful economy  Strong education system  Powerful corporations  Relatively large collective military  Cons  Military is weak, out- dated, and relatively poorly trained  Lags in miltiary tech development  Aging population  Lack of unified decisionmaking structures

 Pros  Huge population  Surging economy and manufacturing capacity  Large military  Strong central government  Desire to lead/have a presence on the global stage  Cons  Population strains and population aging  Relative lack of tech innovation, esp. in military matters  Fragile central government  Economic development is subject to outside disruption  External resource dependence  Lack of military power projection capability

 Pros  Tech innovation  Robust economy  Access to military tech goodies  Cons  Tough neighborhood, not popular with neighbors  Aging, declining population  External resource dependence  Inward-focused security culture

 Pros  Big military  Huge resource base  Continental footprint  Strong central government  Cons  Aging, declining, drunken population  Suspicious neighbors  Internal factionalism

 Pros  Large number of well-educated persons  Huge population (big army!)  Cons  Population pressures  High rates of rural poverty  Lack of wealth

 Brazil  Indonesia  Iran  Nigeria  Pakistan