Lecture 1- The Interplay between politics and economics Flashcards
What societal issues can economics address?
Economics can address poverty, unemployment and inequality
What is the difference in the work done by economists and politicians
Economists provide theoretical frameworks whilst policymakers and politicians implement those ideas
What is the main difference in the way that economists and politicians speak?
Economists often speak in terms of positive statements whereas politicians often speak in terms of normative statements
What is the order of steps taken when a policy is implemented?
1- Economic Theory
2- Economic Research and Evidence
3- Policy Recommendation
4- Political Debate and Decision-Making
5- Policy implementation
6- Outcomes and adjustments
What was John Maynard Keynes’ economic philosophy?
Keynes’ economic philosophy was that he advocated for government intervention especially in times of economic downturn
What is the link between Keynes and Franklin Roosevelt’s New Deal Policies in the US?
Keynes’ ideas significantly influenced Franklin Roosevelt’s New Deal policies in the US
What is Keynes’ most famous quote and what does it mean?
- Keynes’ famous quote is that “practical men of affairs are slaves to some defunct economist”
- His point is that practical men (politicians, businessmen, whoever) who feel they are above the highfalutin ideas of economists are simply making decisions, whether they are aware of it or not, based on weak economic models that current (“non-defunct”) economists would reject.
What is the relationship between politicians and economic theory?
Politicians implement economic theory
Give an example of certain economic theory being implemented by politicians
- Economic theory: Adam Smith and David Ricardo’s advocacy of free trade through specialization and comparative advantage
- Real-world political action: Example of Robert Peel (British Prime Minister) who repealed the Corn Laws in 1846, reducing tariffs and opening Britain to free trade
What does the Phillips curve show?
The Phillips curve shows the relationship between unemployment and inflation, helping guide monetary policy
What is the consumption function?
The consumption function links total spending in the economy to income and is useful for estimating the effect of tax changes
What is the labour demand function?
The labour demand function determines how wage increases might reduce employment opportunities
What is the main challenge for politicians?
Politician’s main challenge is balancing economic evidence with political goals and values; sometimes positive economics gets misused (eg. Laffer curve misinterpretation by Reagan and Thatcher)
