Week 10 - Activism & Policymaking

Question 1

Striking

> Utility dropped today b/c striking (ie. accepting a pay cut today) for higher pay/utility tmr ← rational and not completely irrational

Answer 1

Withdrawing labour (not getting paid) as a means of bargaining for better pay and conditions

Question 2

4 economic theories behind why people protest for civil rights

Answer 2

1. Recognition (increase in utility)
2. Altruism (increase in utility)
3. Warm-glow feeling of giving (increase in utility)
   - Ppl perceive utility from FEELING like they did the RIGHT THING (personal motive), “impure altruism”
4. Avoidance of guilt (decrease in disutility)
   - Sense of belonging and guilt avoidance…
   - …can both foster action even if costly b/c inaction is perceived as even costlier

Question 3

7 reasons why people protest for civil rights, from social psychologists’ POV

Answer 3

1. Lack of trust in governments
2. Shared grievances & identity
3. Shared intensity
4. Geographic proximity
5. Anonymity (collective action allows to share risk)
6. Efficiency
7. Survival instincts (fight rather than flight)

Question 4

Given the evidence of failures in the political process should more decision-making power be given to experts who operate outside of the political process? [PS10]

Answer 4

We have a political process b/c that’s how ppl express preferences and keep the govt accountable. If ppl work outside political process, the ACCOUNTABILITY is missing.
If we move towards experts, we’d need to set up a system to keep them ACCOUNTABLE!

^class answers

Question 5

A concrete example where you think that expert decision making is better than political decision-making [PS10]

Answer 5

Central banks are independent of governments
eg. don’t want govt to take advantage of inflation for a while

Question 6

Economics versus Politics: Pitfalls of Policy Advice (Acemoglu and Robinson, 2013)

+ Chiara’s points from specimen paper

Answer 6

Economic reforms implemented without an understanding of their POLITICAL CONSEQUENCES, rather than promoting economic efficiency, can significantly reduce it.
1. politics creates RENTS for specific groups who have incentives to influence the political process to maintain these rents
2. this means that politicians may not act in a way that maximises a social welfare function and we could observe POLITICAL FAILURES
3. GOOD ECONOMICS may NOT lead to GOOD POLITICS, b/c the economist could fail to anticipate the restrictions their advice imposes on ppl, or fail to consider DYNAMIC INCENTIVES,
eg. if the timber firm moves there will be fewer jobs in the area
eg. from A&R, the economic advice that led to overthrowing the democratic process in Ghana in the 1970s

*The authors argue that political equilibrium may crucially depend on the presence of the market failure.

Question 7

3 broad mechanisms generating circumstances under which good economic policy may make bad politics (Acemoglu and Robinson, 2013)

+ examples

*Rents are an essential means of controlling violence {ie. secure political order}

Answer 7

1. Policies that seek to address market failures can reduce the ECONOMIC RENTS for certain groups and thus may have unintended political consequences
   ~ can link to Chiara’s points for “good economics is not necessarily good politics”
2. Removing a market failure will also generally alter the DISTRIBUTION of INCOME in society, which can affect the political equilibrium <- lead to further increase in INEQUALITY
   eg. potentially efficiency-enhancing deregulation in the US that contributed to the 2008 financial crisis
   eg. Russian privatisation (of firms) that contributed to the rise of an AUTHORITARIAN and repressive regime by Putin ruling over a much more UNEQUAL society.
3. POLITICAL INCENTIVE compatibility CONSTRAINTS may be violated as a result of removing market failures, creating a political backlash
   eg. the economic advice {to devalue their currency to curb the economic crisis} led to overthrowing the democratic process in Ghana in the 1970s
   > This “illustrates that policy advice should take into account that politicians face POLITICAL CONSTRAINTS and that in this case as well, good economics is NOT NECESSARILY good politics”

eg. Attempts by the international community to improve the economic policies of Sierra Leone had the unintended consequence of intensifying the existing violence and arguably even pushing the country into a bloody 10-year civil war {1991-2002}

Question 8

What is one of the most important consequences of the political power of UNIONS according to (Acemoglu and Robinson, 2013)? + 2 examples

Answer 8

The role they have played in creating and supporting DEMOCRATIC institutions around the world

eg. the fight against the apartheid regime in South Africa by the Congress of South African Trade Unions (COSATU)
eg. the formation of the Workers Party (PT) in Brazil in 1979 to force the military from power in Brazil

In summary, policies reducing the effectiveness of unions in negotiating over wages and working conditions for their members will reduce their political power.