America and the Global Economy

Question 1

America and the Global Economy (1): How and why has the world economy changed since 1950?

Answer 1

• The world was much more de-globalized after WWII than it is now.
• Decades of strife - WWI, the Great Depression, WWII, had stopped global trade.
• After WWII, the global economy returns to a level of activity reminiscent of the 1910s.
• Asia was completely in tatters. China, South Korea, and India had GDPs that were lower than that of Sub-Saharan Africa.
• And this was an era of concentrated globalization. OECD/IMF/World Bank, etc
  Not until the 1980s did economic activity resemble the 1910s

Question 2

America and the Global Economy (2): What caused the 1970s to be such a brutal decade and how did the US economy finally recover?

Answer 2

• The Great Society + The Vietnam War (“guns and butter”) lavish spending of the 60s triggers inflation
• OPEC oil embargo - key resource price goes up
• The solution was to, bull-headedly, fight inflation, even sacrificing growth with high interest rates
• Nixon’s artificial juicing for growth to avoid recession to win election

Question 3

America and the Global Economy (3): Why did the 90s boom?

Answer 3

• Technology of the 70s and 80s finally paying off.
• While computer was invented in the 70s, it takes a while for technology to be applied to actual situations. This application of computers finally happened in the 90s with a lot of productivity gained from digitization (e.g hospital room)

Question 4

America and the Global Economy (4): Why did the European economy stagnate after catching up?

Answer 4

• Reaching a natural limit of growth - A lot of the first stage of growth during the 50s, 60s, was extensive and easy: Economies of scale and simply pouring resources.
• Socialist policies? Disincentives to invest
• Socialist-adjacent policies cause disincentives for businesses to grow
  It was like they were pouring more money into capital per worker, but not hiring more workers. High unemployment rates

Question 5

America and the Global Economy (5): What was the state of the European economy in the 90s and how did it change?

Answer 5

• As a reaction to the over-socialism of the 70s, by the 90s restrictions on social programs cause an improvement in unemployment
• Formation of the European Union spurs modest growth/trade
• It got better, modestly

Question 6

America and the Global Economy (6): How can you stem the drawbacks of a single, unified currency to reap the benefits?

Answer 6

• Create an economic union that provides for free flow of goods/labor/people/capital so that regional shocks can be adjusted for
• Diversity. No quartered off specialization

Question 7

America and the Global Economy (6): What year was the Euro adopted?

Answer 7

2002

Question 8

America and the Global Economy (7): What was the emotional view of the Soviet Union economy? How was the view different from the reality?

Answer 8

• The Soviet Union was seen as a real alternative, especially after the tumult of the first half of 20th century (World Wars, Depression).
• But in reality, Soviet Union economy was very inefficient. State plans by ministries (Gosplan) that laid out production quotas.
• Yet planning before computers. This meant “planning from the achieved level”, just do a little more than last year
• Bad incentives - No one wanted to succeed because if you did, then you were expected to do more. No innovation. “They pretend to pay us, we pretend to work”
• Money didn’t really mean much in Soviet Union. State services. Other goods were rationed/waiting lists
• The raw materials are worth more than the final product! Raw leather worth more than a Soviet shoe!

Question 9

America and the Global Economy (8): What happened after economically after the fall of communism in the Eastern Bloc?

Answer 9

Big Bang switch over to capitalism (The Washington Consensus), which caused:
- Hyperinflation, spurred on by monetary overhang
- Privatization of previously nationalized companies, resulting in oligarchs (many ways to do this, including giving public stock but all not great)
- Suspension of social welfare programs
- A time of misery and pain, especially for men as role in society changes (alcoholism, suicide, despair)
- A severe economic depression (cutting economy by half!)

Question 10

America and the Global Economy (9): How was Japan seen in the 70s and 80s? Why was this wrong?

Answer 10

• In the 70s and 80s, Japan was seen as a new, burgeoning economic model. Rapid growth. Overtake West
• “Japan, Inc” - A business friendly government
• “Long term” investment, rather than greedy shareholders
• But actually, Japan was just flush with too much capital that masked deeper problems. High savings rate
• Japan’s economy grew not from some new approach, but getting the fundamentals of economics right - a steady focus on core public goods (education) and a high savings rate, willingness to import foreign ideas

Question 11

America and the Global Economy (10): How can Japan recover from the economic bubble burst of the early 1990s?

Answer 11

• Japan has a two tier economy. One tier is world-class and competitive (e.g. Nintendo, Sony). The other in less-sexy industrial sectors (where is Japan’s Walmart?) is propped up by subsidies.
• Stop this “Japan, Inc” nonsense. Japan needs to cull these inefficient “zombie” companies and banks. Stop endless lending, and let those that need to fail, fail.
• The economic bubble burst is caused by American devaluing the dollar, causing American exports to compete with Japanese exports.
• Housing bubble collapses. Emperor’s garden is worth more than Canada. 80% loss.
• Need competition

Question 12

America and the Global Economy (11): How did the East Asian Tigers rise?

Answer 12

• Focusing on the basics of an economy - education, infrastructure, keeping stats stable (e.g. inflation), being open to foreign ideas/investment
• Healthy measures to encourage competition (e.g. export contests) and domestic incentives (e.g. subsidies)

Question 13

America and the Global Economy (12): Why did the East Asian financial crisis of 1997 happen?

Answer 13

• The currency of the Asian Tigers (specifically starting in Thailand) devalues in 1997, causing a spiral of problems with foreign loans. With devalued currency, foreign loans in dollars are worth less and can’t pay back. Investors lose confidence and pull out
• Solution: To keep foreign reserve currency to buy back currency to strengthen.
• Solution: Allow flexible exchange rates to respond to market forces

Question 14

America and the Global Economy (13): How did China reform its economy starting in the 80s?

Answer 14

• Gradual introduction of market forces, including the abolishing collective agriculture, and reducing price controls
• Introduction of free-market with TVE (town and village enterprises) doing light manufacturing
• Evolution of nationalized industries into SOE (state owned enterprises) that was a hybrid of state owned and private market
  Opening up to foreign trade with foreign trade zones

Question 15

America and the Global Economy (14): What is the solution for the next phase of China’s economy?

Answer 15

• Regulating inefficient SOEs (companies that have soft budget constraints)
• Labor shortage/population problems looming. Not just birth rate, but as country richer, less actual unskilled
• Increase spending on social welfare state - infrastructure, education, healthcare
• Evolve from export (and manufacturing/industry) driven economy, to domestic household consumption economy

Question 16

America and the Global Economy (15): What was the state of the Indian economy like in the late 80s, before the 90s? Why?

Answer 16

• License raj. Nightmare hell of bureaucracy that stemmed from socialist Gandhi economic philosophy
• Nationalized industries (e.g. Hindustan Ambassador, only one kind of car)
• Mild/modest 3% growth
• “Too many exploited, not enough exploiters”
• Little foreign trade. Skeptical because of colonialism

Question 17

America and the Global Economy (18): Why is the Middle East so poor despite having so much oil?

Answer 17

• An oil rush creates perverse incentives. Economy geared only for oil, nothing else
• Easy, indulgent foreign borrowing. Running high deficits
• Inflation, with the influx of cash
• Perverse incentives. Why have democracy? Powerful elite controls oil

Question 18

America and the Global Economy (19): Why is Africa poor?

Answer 18

• Cursed by bad geography - lack of waterways for transport (rivers have waterfalls), low amount of coastline
• Located near the tropics is a curse - disease (malaria), sure innovation for golden rice, but not for cassava, taro
• Colonialism - yes, but not just.
• Poverty trap - sending kids to work, but not school

Question 19

America and the Global Economy (20): How has Africa had modest growth and how can it continue and improve growth?

Answer 19

• Continuing the basics of macroeconomic discipline
• Keep inflation low, debt low.
• Move towards free market (ending price controls)
• More peace and democracy, political stability
• Allowing more foreign investment
• Need to improve - need to improve infrastructure (electricity, roads)

Question 20

America and the Global Economy (21): What caused the 80s to be the “lost decade” for Latin America?

Answer 20

• Debt crisis caused by overborrowing and extravagant government borrowing and deficit spending
• Populism causes import substitution meant that governments gave extravagant subsidies to domestic industries, but babied them, so unable to compete on world market
• Isolationist reaction to neocolonialism
• Insane triple digit inflation
• Latin America characterized by volatility. Perhaps Latin American Tigers, but no. Argentina used to be high income country in 1900.

Question 21

America and the Global Economy (23): How is globalization good?

Answer 21

• High income countries have all embraced trade
• Trade is good, even with similar products to activate economies of scale, similar knowledge, and expanding into similar markets
• NAFTA in 1994, but then 7 years of job growth. Impacts hit certain jobs, but not overall
• Technology is the bigger problem

Question 22

America and the Global Economy (24): How is foreign investment both good and bad?

Answer 22

• Foreign investment can be two parts: portfolio, direct
• Investment is obviously good, but has tendency to flood in and flood out quickly
• Allowing too much too soon, government borrowing can cause debt crisis and inflation (e.g. 80s Lost Decade of Latin America)

Question 23

America and the Global Economy (25): How do you fix a currency exchange rate?

Answer 23

• Control the supply of your currency. If want currency to increase, then lower the supply making it more rare by buying back currency with foreign reserve currency.
• If want to lower currency value, then increase supply by printing more money.

Question 24

America and the Global Economy (26): How does immigration impact a receiving country?

Answer 24

• Immigration beats foreign aid - Immigrants can make a lot more money, which gets sent back home in remittances. This can infuse low income countries with a lot of money.
• There can be an impact - though often overexaggerated - on local economies and local city governments. No, there is not a mass low wages (see Mariel Boatlift in Miami).
• Ultimately, economies are elastic and can absorb immigrants, not great economic impact, which brings to forefront nativist and philosophical arguments.

Question 25

America and the Global Economy (27): Why will we not have a population crisis?

Answer 25

Demographic shift - because of increased wealth, urbanization there will eventually be a cap on people on planet.

Question 26

America and the Global Economy (28): How do you measure that poverty has improved in recent decades? Why?

Answer 26

• Poverty has improved according to the $1-a-day metric
• Human Development Index
• Time and again, growth is the only way to improve poverty. There are not enough “rich” in low-income countries

Question 27

America and the Global Economy (29): Why are food prices increasing?

Answer 27

• Global food supply is relatively static, but demand is shooting up as countries grow and modernize (e.g. eating more meat)
• Biofuels
• This is worrying because of the diminishing returns of the green revolution

Question 28

America and the Global Economy (2): Who fought in the Yom Kippur war? When?

Answer 28

Israel vs. the Arab states, including OPEC countries. 1973

Question 28

America and the Global Economy (2): What year was the oil embargo?

Answer 28

1973

Question 29

America and the Global Economy (4): What year was the first European integration group formed? What was it?

Answer 29

1951

Question 30

America and the Global Economy (4): How many weeks do Europeans get for vacation?

Answer 30

10 weeks

Question 31

America and the Global Economy (4): What level is considered “high” unemployment?

Answer 31

10%+

Question 32

America and the Global Economy (5): What is a measure the World Bank measures?

Answer 32

Reduce administrative red tape in starting a business. (World Bank actually ranks how easy it is to start a business)

Question 33

America and the Global Economy (16): What characterizes the Indian economy since 1991 and today?

Answer 33

• With Narasimha Rao, free market and abolishment of the license raj
• Influx of foreign trade and investment
• Higher levels of growth, but leading to inequality (“half Silicon Valley, half Sub-Saharan Africa”)
• But still, inefficient, restrictive “generous” labor laws remain. Hard to fire workers. Hard to start a business

Question 34

America and the Global Economy (17): How has Islam impacted the current state of the Middle East economy?

Answer 34

• Reba - A culture that has forbids interest, chilling banking culture
• Partnership ends on death - A restrictive cultural practice of individualized agreements (no corporations)
• Thus, keeping partnership small and low
• Waqf - A restrictive cultural practice of small trusts
• This system was inflexible, unable to be amended and adapt like a capitalist system could
• Used to start a specific business/trust/firm, with a specific agenda, but unable to adapt
• Not good for public goods
• Restrictions on women
• The harmful concept of the “end of knowledge” (itjtihad)

Question 35

America and the Global Economy (22): What was the impact of the reforms in Latin America starting in the 90s?

Answer 35

• The reforms were based on the Washinton Consensus, a series of free-market based proposals (pro-trade, anti-protectionism)
• Lukewarm growth, arguments for either more or less
• Controlled inflation at least

Question 36

America and the Global Economy (30): What approaches can you take to solve the problems of future urbanization?

Question 37

America and the Global Economy (31): Besides outright gender discrimination, what sexist forces do women face?

Question 38

America and the Global Economy (32): How do you measure corruption?

Question 39

America and the Global Economy (33): What are the benefits and drawbacks of foreign aid?

Question 40

America and the Global Economy (34): Compare and contrast the responsibilities of the multi-lateral organizations

Question 41

America and the Global Economy (35): What is the main governmental body on global warming?

Question 42

America and the Global Economy (36): NEED QUESTION Globalization and Convergence