Economy Flashcards
what is classical economic theory
Adam Smith, David Richardo, John Stuart Mill
1st modern school of economic thought
Adam Smith: Wealth of Nations
natural laws regulate the economy
laissez faire
economy will find reach equilibrium balance between supply and demand naturally when left alone
naturally self regulating
it was from Adam Smith and Richardo that Marx developed the theory of labour value
supply and demand -the shoe example
what is supply and demand
part of classical economic theory
ultimately supply will always balance out to demand
(demand for shoes-sells shoes at a high price-makes profit-others will being to sell shoes-will sell them at a lower price- demand decreases-supply outstrips demand-people stop buying-people stop producing
natural equilibrium self regulation
(marx tendency of profit to fall is ingrained into supply and demand which in turn leads to crisis)
what is inflation
the value of money goes down to the price of po ducts goes up
because money is the means of exchanging things of an equal worth
monetarism: control inflation through the supply of the money (inflation=pull money out of the economy) not so brothered about unempolyement
what is monetarism
monetarism: control inflation through the supply of the money (inflation=pull money out of the economy) not so brothered about unemployment
thatcher pursued monetarism but had to stop because unemployment got too high
why a policy of monetarism- because our economy is service based-services built around the city need to keep the banks happy
-how do you keep the banks happy? you keep inflation low-because if inflation gets too high then you get rid of everyone’s debt
what is quantitative easing
producing more money
problem with today? banks still aren’t giving out loans
why? because the markets won’t tolerate it, the markets are people so must be ideology
what is demand management
controlling/artificially simulating the amount of demand
eg VAT tax breaks tax increases investing in industry encouraging. Keynesian
gov must stimulate demand because it isn’t there
?
demand is there the MONEY isn’t there
what is supply side economics
not backing demand not trying to stimulate demand because of the belief that demand comes from supply so cut taxes and keep inflation low to encourage supply and demand will follow. Good labour increases supply, flexible work force
cutting red tape
economic growth can be created by lowering barriers for people to produce (supply) goods-lower income tax,reduced regulations, flexible workforce
what is under employement
when there aren’t enough jobs eg people can only get part time jobs want to work more but can’t
what is globalisation
increasing interconnection global integration
is both cultural ans social and economic
opening the markets
neo-liberalism facilitated it
integrated world economy
movement of people
what does the right think of globalisation
in favour of economic golbalisation
no in favour of the rest of it
tension
look at how the cons are being taken apart
what does the left think of globalisation
economic against exploitation opposed to neo liberalism
some see right as all good
what is a planned economy
government have a plan
how can they have a plan
nationalization
what is marx theory of labour value?
- human labour is the source of all value
- 2 types of value: use value(how useful something is) and exchange value(ability to exchange for something of equal value (same amount of labour embodied within it))
- what is money-reflection of labour value
- competition makes prices fall, machinery produces more, falls price to fall more, leads to crisis not equilibrium
- organic composition of capital would change-the traitor of dead labour (indirect labour/machinery etc) to living labour. Means value decreases further because value is still the living labour even more crisis
Keynes on the economy
context: great depression (collapse of lib thinking) new deal (up in public spending)
view on Versailles: not going to work with rich countries being over bearing to the weak (today Greece and Germany)
what would Keynes do:
remove of cut greek debt (not going to pay it back they’re a tourists chill economy) already paid what they owe
how Keynes viewed the economy: make the economy work for you-you can predict the economy but this clearly isn’t true
-what can e know? herd psychology, speculative bubble profit comes from speculation not inveiglement combined with herd physiology prices spiral out of control-you have to regulate this
-if the economy sinks it may not automatically float up-the economy is not self-stabilising
-once the toward spiral beings-low animal spirit
-gov can overcome this via investment and artificial assimilation
Hayek on the economy
-very radical no government intervention
-faith in the free markets BUT gov and banks could meddle but only in a specific way-control of the money supply
-2008: 2001 usa central bank cut interest rates-makes it easy to borrow-creates a housing boom/bubble-interest rates weren’t natural bubble had to burst (why did america cut interest rates-was worried economy was slowing)
-seed of bust were sown in boom
thatcher and he disagreed over the role of the economy
what was the post war consensus
-1939-45
model social democracy combining planning and collectivism with civil liberties.
Bevridge and Keynes
-government had a commitment to full employment
-acceptance and encouragement of a positive relationship with trade unions increasingly over income
-mixed economy-large role for sate ownership and intervention and planning the economy
-national insurance system and national health service meant an adequate income for all and free health service
-government could and should play a positive role in promoting greater equality-progressive taxation, redistributive welfare spending, comp schooling and regional policies.
-persuade by both parties
-cooling when overheated
-heating when cooling
the economic decline of the 1970s
- main parties competing to reverse decline as growing awareness of britain’s declining status.
blamed: failure to invest in new machinery, restrictive work practises, outdated attitudes on the shop floor, amateurish management. - plagued by high inflation, low growth and irresponsible trade union power.
- believed income polices would be the answer to inflation tried to agree a norm annual wage rise however unions found it hard to stick to because inflation did continue
- IMF 76 loan in return for spending cuts and anti-inflation
- 76 winter of discontent strikes over wages
thatcherism
-insisted government could no longer be a universal provider
-reactionary not all polices outlined in 79 election
-trade unions operated in a tighter legal framework: pre-strike ballots, end of closed shop (a member as soon as takes job), unions liable for damage caused by striking, abandoned income policies, lost influence in gov.
-spread of privatisation
-abandoned commitment to full employment
-welfare state means tested
-no longer universal provider
Mandate:
-crush the minors strikes and with that reduce union power
-recapture falklands
New Labour and the New Right
- accepted need to prioritise economic stability and encourage private enterprise
- traditional base broken aimed more for the middle classes
- removed clause 4
- close relationship with usa
- followed her style of leadership with a strong rule, in control, using cabinet as a rubber seal of approval
a new consensus
- inflation is priority
- no income policies
- greater role to the markets
- privatisation
- flexible work force
- bank of England independence
flexibility of labour Bob Jessop
economic goals: deregulation, deregulation of the markets-free markets
deregulation economic agents greater freedom from state control and legal restriction-laissez faire and free market
-privatization -reducing public shares
-recommidification- using what is left of the public sec to promote market forces
eg education pushing into academies, privatization and outsourcing has left less money in the LEA for schools that do stay.
-internationalization encouraging the mobility of capital london city
-not a high wage economy-service sector low wage jobs
key elements of new labour policy
- labour market flexibility: welfare to work combat unemployement pressure on people. emphasis on the supply of labour. rhetoric-no more something for nothing, had to earn benefits. job seekers allowance act. greater employment will come from supply and you stimulate supply via flexible workforce. Youth unemployment: employement, ed, vol, sustised job
- economic prudence
- PFI initiative
- Poverty reduction strategies
new labour’s economic record Chris Harman
New Labour claimed “longest period of sustained growth” thanks to labour market flexibility, market testing, privatisation and contracting out in the public sector and longer working hours.
Uk-high interest rates-attract foreign money
essentially pay cuts-pay rise isn’t equal to price of living-essentially a pay cut-not noticeable because easy availability of credit-borrow to ease
disposable income figures boosted by the rich-increased inequality
New Labour’s 10 point pledge
- education is #1 priory up spending. Decrease spending on bills of economic and social failures
- no increase on the basic or top rate of income tax
- stable economic growth with low inflation-dynamic and competitive business and industry and hoe and abroad.
- 250,000 young employed
- rebuild the NHS reducing spending on admin
- tough on crime tough on the causes of crime
- build family and community centres foundations of a modern welfare state
- safeguard the environment
- clean up politics-decentralise political power and keep people accountable
- leadership in Europe
