Strengths and Weaknesses of Economics/Political Systems Flashcards
What are the Advantages of a Free Market Economy?
firms are likely to lower prices and make more efficient use of scarce resources
The bureaucracy from government intervention is avoided
(Bureaucracy: a system of government in which most of the important decisions are taken by state officials rather than by elected representatives.)
More personal freedom
What are the Disadvantages of a Free Market Economy?
Ignores Equality, as firms only want profit
May lead to the overconsumption of Demerit Goods which have large Negative Externalities
Public Goods are not provided
Merit Goods are Underprovided
There could be Monopolies which could exploit the market
What are the Advantages of a Communist Economy?
As the state is central to the economy, it can quickly mobilise economic resources on a large scale. It is able to execute massive projects and create industrial power.
Communism subjugates the welfare of the general population to achieve imperative social goals.
What are the Disdvantages of Communist Economies?
Asymmetric Information: The government are unaware of what is actually happening in Businesses, etc.
Unable to Respond to Consumer Preferences
Power: Command economies create a very Powerful Government, which Threatens Democracy.
Also, the government could end up Controlling Other Aspects of People’s Lives
To compensate for an elimination of the free market, citizens create a black market to trade the things the planners don’t provide. This destroys the trust in Marx’s pure communism.
What are the Strengths of Institutionalism?
Insitutionalists try to dissolve the boundaries between the different institutionalist types. So one can explain a phenomenon more fully through a combination of different branches, instead of solely falling in one category.
Historical institutionalism’s
strength is its inductive methodology and its willingness to derive working models of rationality and actor
preferences not through abstracted assumptions but through careful empirical observation.
What are the Weaknesses of Institutionalism?
In general, a lot of institutionalism is very abstract, with no basis/foundation. This makes it lack ontology.
In certain respects, institutionalism is abstract and is based on unreal assumptions which render it unsatisfactory to the scientist.
Like the classical economists, the “economic man” of the institutionalists does seem to be real. They have treated man as a mere creature of habits.
While making use of the words such as “effective”, “serviceable”, “workmanlike”, “futile”, they have not prescribed any criteria for the measurement of these. Their thought is full of abstractions and unrealistic.
Their thought leads to the adoption of the test of “survival” which is not only a strong materialistic concept but is vague.
Their thought contains important deductions which cannot be verified. For example, their statement that present conditions are bad and they can be improved by changing “institutions” appears to be a mere assumption, because it is difficult to know what institutions are good and what are bad.
In the 1960s, Gary Becker and “many of the best and brightest mathematical economists” applied rigorous neoclassical arguments to problems that the institutionalists abandoned.
o Becker said: “The expansion of educational institutions, long considered a cultural phenomenon, was declared the outcome of rational individuals investing in their own capacities (Becker (1964), followed by a vast outpouring of literature on ‘human capital’.”
What are the Strengths and Weaknesses of Institutionalist Thinkers?
Strength: Institutionalists have exposed the weaknesses of classical economics, unreal assumptions and the abstract method.
Weakness: With the exception of Veblen, no one has added anything material to the body of economic science. They have made valuable descriptive studies and criticisms but they have neither said anything new nor they have provided any scientific basis for the reconstruction of the science.
What are the Strengths of Neoliberalism?
It being ‘neo’ (new) means that unlike philosophies of old, there are actually new concepts and ideas being espoused. . Rather than relying on old or outdated concepts, a lot more people are willing to open their mind to it.
Neoliberalism features bigger governmental influence, which ensures that if a president or politician actually wants to get something done, they can use neoliberalism to their advantage and actually advocate for some progressive change.
What are the Weaknesses of Neoliberalism?
Modern economics is dominated by extremities of methodological individualism; which makes it difficult to recognise how economic action is shaped by social relations, and that all economic actors are embedded.
Many economics who want to reform the discipline away from institutionalism criticise its psychological viewpoints; proposing a more realistic model of decision-making (Leibenstein, 1976)
The psychology in neoclassical models is naïve, but the main difficulty in neoclassicism lies in its neglect of social structure.
—> Psychological revisionism has a following in part because it does not require economists to give up the assumption of atomized actors making decisions in isolation from broader social influences.
What Improvement was suggested for Institutionalism?
Neoliberalism attempts to erect an enormous super- structure on a narrow and fragile base.
A more solid foundation can arguably be constructed on the basis of 3 classic sociological assumptions:
- the pursuit of economic goals is normally accompanied by that of such non-economic ones as sociability, approval, status and power
- economic action (like all action) is socially situated, and cannot be explained by individual motives alone; it is embedded in ongoing networks of personal relations rather than carried out by atomized actors (Granovetter, 1985)
- economic institutions (like all institutions) do not arise automatically in some form made inevitable by external circumstances, but are ‘socially constructed’ (Berger & Luckmann 1966).
What was Classical Economy’s relevance?
Classical economic theory helped countries to migrate from monarch rule to capitalistic democracies with self-regulation.
What are the Strengths of Classical Eocnomics?
x
What are the Weaknesses of Classical Economics?
x
What are the Strengths of Neoclassical Economics?
The method is clearly scientific, with assumptions, and hypothesis and attempts to derive general rules or principles about the behaviour of firms and consumers.
