Mid-term

Question 1

Friedman ideas on individualism

Answer 1

♣ What is the proper relationship between government and individual?
• Monetarism = is an economic theory that focuses on macro effects
o Excessive expansion of the money supply is inherently inflationary
o Authorities should focus on solely maintaining price stability
o Financial Crisis: caused or made worse by government
o Crowding Out: Keynesian: multiplayer does no work
♣ i.e. more gov spending means less private spending, no net increase
o Time Lag: Government policies are slow
• Friedman Wants
o Rules not decision-makers
o Steady growth of money supply
♣ “We do not know we can only know that entrepreneurs working in competition make the world a better place”

Question 2

Friedman on Rationalism

Answer 2

♣ The Theory of Consumption Function

• “Permanent income hypothesis” = individuals make rational plans over the course of a lifetime.

Question 3

Friedman Associated with what consensus ?

Answer 3

Neoliberalism

Question 4

Friedman on Corporations?

Answer 4

Corporations
♣ “The Social Responsibility of Business is to increase its Profits”
♣ Gov. Has responsibility to impose taxes and determine expenditures for such “social purposes as controlling pollution or training the hard-core unemployed…

Question 5

Friedman on Monopolies?

Answer 5

three alternatives for a monopoly: public monopoly, private monopoly, or public regulation. None of these is desirable
social responsibility

Question 6

Friedman on Gov?

Answer 6

Government as Umpire
1) enforce law and order
2)  property rights,
Only Intervene 
---- technical monopolies
----- diminish negative "neighborhood effects."

Question 7

Friedman on the market

Answer 7

Bends argument that market is good for consumers

• —“Wherever you had freedom you had capitalism”
• —-“Mix of incentives and competition is the best system”

The Market= 5 Basic Functions

• —Free Exchange is efficient
• —Free Exchange leads to peaceful cooperation
• —Free exchange is voluntary and not coercive
• —Diversity instead of conformity
• —Economic freedom is required for political Freedom

Question 8

Friedman’s work?

Answer 8

Capitalism and Freedom 1962

Question 9

Polanyi associated with what?

Answer 9

Embedded liberalism

Question 10

Polanyi on Markets

Answer 10

“Laissez-faire planned. Planning was not”
Fictitious Commodities
—Land
—Labor
—-Money
As Markets grow so does the need for regulation which leads to The Double Movement
1) Birth of the Liberal Creed
2) The self protection of society
The dangers ahead
—–The market advocates that gov intervention is reason for failure

Question 11

Galbraith on society

Answer 11

Dependency affect / - Sovereignty Consumer

Lack of “consumer sovereignty”
Accepted sequence - demand drives supply
—–Market System
Revised sequence - producers create demand
——–Industrial System
How?
—–Marketing and Advertising
Machinery of consumption demand creation
Consumers are no longer sovereign

Question 12

Galbraith Corporations System and Problems

Answer 12

Industrial System 3 parts
1) Small number of powerful corporations
Monopolies
2) Controlled by a technostructure
——–Managers (technicians) make decisions (Not owners
3) Goals: Survival. Continuous growth.
Maximum Size Profit is not top priority (relates to drucker)

Corporations Problems

1) Increased control over markets
2) Not subject to demand constraints
3) Power over consumers and commercial culture
4) Power over government and politics
5) Concentrated power: inconsistent with Democracy

Creates problem of social imbalance:Money is spent on consumer, not in public sector, imbalance of public/ private spending

Question 13

Drucker Corporations

Answer 13

• Corporation is NOT to be profit maximizing but is to create a CUSTOMER
• Profits = limitation
• Main functions are innovation and marketing

Question 14

Sweezy on corporations

Answer 14

-Monopolies/ Corporations 
o	3 Themes 
1) Monopolization 
•	Concentration of profits
2) Stagnation 
•	Limited investment opportunities 
3) Finicalization 
•	Movement from production to finance 
o	Solution = Find new markets

Question 15

Keynes 4 main ideas

Answer 15

1) Animal Spirits (not rational beings)
2) Multiplier (changes in spending as snowball effect)
3) Prices and wages do not always adjust
4) Self regulation (investments wont auto-return to pre-depression)
- —Says Law supply creates demand therefore focus on production

Question 16

Galbraith’s view of Capitalism 5 Sections

Answer 16

1) Private enterprise
2) Competition =. Market power (monopolies)
3) Private property
4) Profit motives = technostructure
5) Consumers Sovereignty = Dependency effect

Question 17

Schumpeter on entrepreneur and Why Innovate?

Answer 17

Profit comes from entrepreneurs and their innovation
—-Intelligence of the innovator
——-Not from labor or the ownership of resources(rent)
Entrepreneur : Profit Generator
—Not necessarily The one who receives it!
——Driven by inter-demons to change the world

Why Entrepreneurs Innovate?

1) Money
- —To found a private kingdom
2) Success
- –To prove oneself superior
3) Joy of Creating

Question 18

Schumpeter on Market

Answer 18

Creative Destructiveness
Capitalism is a process of creating and destroying its own creations; create something new then destroy it for new innovation

Question 19

Schumpeter vs Mazzucato

Answer 19

Schumpeter: innovation comes from entrepreneur
Mazzucato: innovation stems from state influence

Question 20

Schumpeter associated with? work?

Answer 20

Keynesian Consensus; Capitalism, Socialism & Democracy

Question 21

Schumpeter’s theory of economics

Answer 21

Does not think capitalism can survive but thinks socialism will

• –Schumpeter thinks socialism will happen easily, peacefully
• —Marx = violent, riots

Question 22

Sweezy vs Galbraith

Answer 22

Agree on Market

1) Competitive firms - Price Takers
2) Monopolies - Price Movers
3) Result
- —-Monopolies don’t cut prices, they cut costs
- —Prices are consistent demand stays the same
- Costs go down– increasing rate of profit

Question 23

Kindleberger on business cycle

Answer 23

Neoliberalism 
4 steps to Financial crisis 
1) Displacement
2) Euphoria (boom) (Credit expands)
3) Mania (Irrational) - "This time is different"  
----Optimism spreads to new sectors 
----Short-term profit seeking 
4) Distress 
----Credit dries up

Pro-Cynical role of Credit
Lender of Last Resort
—Problem; Moral Hazard

Question 24

Thaler & Sunstein on society

Answer 24

Neoliberalism
Two Brain Systems
1) Reflective
—–Slow, conscious, one thing at a time, analytical
—–High-energy release
2) Automatic
—-Fast, unconscious, Muti-tasking
—–Low-energy use
•Libertarian Paternalism
oLibertarian
♣ “People should be able to do what they like”
oPaternalism
♣ “It is legitimate … to influence peoples behavior in order to make their lives longer, healthier and better”
oChoice Architecture
♣ “…organizing the context in which people make decisions”
•Nudging
o Make it easy for consumer to make good decisions
o Opt out rather than opt. out people are poorly informed thorugh lack of time

Question 25

Chandler

Answer 25

Physical Hand within the market
Created a world in which the invisible hand does not matter but the managerial hand is impacting peoples life (the hierarchy of business)

Question 26

Fictitious Commodities

Answer 26

Polanyi
Land, Labor, Capital =not created for the market

“When these public goods and social necessities (what Polanyi calls “fictitious commodities”) are treated as if they are commodities produced for sale on the market, rather than protected rights, our social world is endangered and major crises will ensue.”[2]

Question 27

Polanyi on Society and Market

Answer 27

the effort by classical liberals to make society subject to the free market was a utopian project