Midterm Flashcards
Richard Wilkinson and Kate Pickett argue that high levels of economic inequality in developed countries lead to relatively poor social and health outcomes. Give two examples of poor social or health outcomes that they trace to inequality and note the causal linkage that W&P suggest
1) anxiety- status anxiety, class
2) trust
gathered data from the 50 states and European countries
proved causal relationship by running analysis on average incomes in countries/state, and there was no relationship
Wilkinson and Pickett graph a/b income inequality and health problems?
Health and social problems are closely related to inequality among rich countries
What points does Joseph Stiglitz make in his article “The American Economy is Rigged – And what we can do about it.” Scientific American? Ex.
- high income inequality in US
- also US gives ppl w/$ political power
- stopping $ in politics will curb income inequality
- why the inequality increase? rules have been rewritten
ex: stories a/b poor-boy-makes-good are popular precisely because they are rare
What is the vicious cycle Joseph Stiglitz describes in his article “The American Economy is Rigged – And what we can do about it.” Scientific American?
“economic inequality translates into political inequality, which leads to rules that favor the wealthy, which in turn reinforces economic inequality”
According to Joseph Stiglitz’s article “The American Economy is Rigged – And what we can do about it.” Scientific American, why is aggregate demand in countries with higher inequality weaker?
b/c the rich typically spend a smaller fraction of their income on consumption than the poor
What is one conclusion from Richard Wilkinson’s Ted Talk?
Stressful tasks study, and social element: threats to self-esteem or social status, most reliably raised cortisol
How does Robert B. Reich explain the relationship between markets and govt in “Saving Capitalism: For the Many, Not the Few?”
govt not intruding but creating the market; process of politics set rules, which can be changed; those w/power and resources contribute to campaigns/ employ armies of lobbyists to get rules changed
Robert B. Reich quote about markets and govt in “Saving Capitalism: For the Many, Not the Few?”
“Power and influence are hidden inside the processes through which market rules are made, and the resulting economic gains and losses are disguised as the ‘natural’ outcomes of ‘impersonal market forces.’ Yet as long as we remain obsessed by the debate over the relative merits of the ‘free market’ and ‘government,’ we have little hope of seeing through the camouflage.”
What is John Maynard Keynes theory of political economy?
Government needs to step in with strategic gov’t spending w/public works + infrastructure (Gorge trails product of Keynesian gov’t spending); putting them on payroll increases demand, restarts economy
What is global events informed John Maynard Keynes theory of political economy?
looking at boom and bust cycles; conventional wisdom was that we just had business cycles, but what Keynes observed that sometimes when it came down, it wasn’t going back up and there was gonna be long-term employment; in 20s and 30s political democracies were collapsing i.e. Great Depression
What is one positive effect of John Maynard Keynes theory of political economy?
smooth business cycle: Makes mass production possible b/c you have to predict how many i.e. fridges you have to sell; gov’t fine tuning economy stabilizes predictability
What is Milton Friedman’s theory of political economy?
the problem: big government, intervention
the solution: deregulation
limited government role in the economy unleash entrepreneurs, business
When did Milton Friedman’s theory of political economy become dominant?
Over course of the 80s became dominant; 1980-2008
What was Milton Friedman opposed to?
bail-outs! lack of free trade
What was Postwar consensus in the West: 1940s to 1970s?
US: New Deal, Keynesian policies
France, Germany, Japan: rapid growth, organized capitalism
What would Milton Friedman say in response to the Great Depression?
Great Depression demonstrated that markets couldn’t work, but period after that demonstrated that gov’t could also have failures
What happened from 1980-2008 in global north economies?
free-market capitalism; “Washington Consensus;” deregulation, tax cuts, free trade; employer offensive against unions, which led to wage stagnation; growing income inequality
What was the Washington Consensus?
drawing heavily on ideas of Friedman; after Berlin Wall fell, “Washington Consensus” was idea that whole world could be market societies and political democracies
Describe overall trends in economies 1980-2008
From managed to free-market capitalism
From stable regulation to growing deregulation
From rising wages to average wage stagnation and growing economic inequality
Globalization of ideology, policy, and crisis
Describe mortgage-backed securities and their role in the crisis
subprime loans are packaged in mortgage backed securities;an individual subprime loan may be risky, but packaging them spread out the risk; not one or two collapsed by whole bunch ricocheted; spreading risk around essentially spread the crisis around
Quick summary of crisis
If not for 30 years of average wage stagnation in the United States, with steadily growing economic inequality, people would not have needed subprime loans.
If not for 30 years of deregulation, culminating in financial free-for-all, they would not have been able to get subprime loans.
2008 Crisis factors and relationships between them
Deregulation and union declinelead to . .
wage stagnation, growing inequalityresulting in . .
massive private and public debt,combined with . .
deregulation of the financial system,resulting finally in . .
financial collapse and economic crisis.
Describe “Chutzpah on Steroids” (Herbert)
Consumer Financial Protection Bureau: “The family home is the largest purchase most Americans ever make…Everything about that contract should be crystal clear to the buyer.”
- financial industry caused crisis, was bailed out, is fighting creation of CFPB, and is still doing other predatory practices
Consumer Financial Protection Bureau
Warren: would shield individuals and families from deceptive practices and outright fraud by banks and other businesses offering credit cards, mortgages, home loans and other forms of consumer finance; hide traps in contracts
What is Glass-Stegall Act?
The decision to repeal the Glass-Steagall Act of 1933 provoked dire warnings from a handful of dissenters that the deregulation of Wall Street would someday wreak havoc on the nation’s financial system. The original idea behind Glass-Steagall was that separation between bankers and brokers would reduce the potential conflicts of interest that were thought to have contributed to the speculative stock frenzy before the Depression.
