week 11 - the welfare state + development

Question 1

political economy

Answer 1

the study of how politics and economy interrelate and affect one another.

Question 2

what is a key thing welfare states do and provide

Answer 2

• A key thing they do is they help reduce economic inequality.
• “government-protected minimum standards of income, nutrition, health, housing and education.”

Question 3

economic inequality

Answer 3

the extent to which wealth is spread unevenly.

Question 4

most useful indicator of inequality

Answer 4

the Gini coefficient: it gives a continuous measure of inequality.

Question 5

how does the gini coefficient work

Answer 5

• a value of 0 indicates that everyone has the same wealth (perfect equality)
• a value of 100 indicates that one person owns all the wealth (perfect inequality).

Question 6

the lorenz cure explanation

Answer 6

• Perfect Inequality: Lorenz Curve would arch down to the right angle of triangle.
• Perfect Equality: Lorenz Curve would flatten out to the line of the triangle.

Question 7

how do welfare states reduce inequality

Answer 7

by redistributing wealth via taxation and spending on food assistance, healthcare, education, housing and income support.

Question 8

communism and welfare states

Answer 8

• Social Spending is not communism/socialism.
• Welfare states are part of capitalist economies: fruits of capitalism are redistributed to those who do not share in them.

Question 9

types of welfare states

Answer 9

Liberal
Social Democratic
Conservative

Question 10

liberal welfare states

Answer 10

• most hands-off
• Benefits are relatively low and aimed at particular societal groups: individuals are responsible for purchasing more comprehensive insurance.
• The welfare state is primarily financed by taxes; overall public spending is relatively low.
• the U.S. is an example.

Question 11

social democratic welfare states

Answer 11

• most hands-on
• Benefits are granted to all individuals; not aimed at particular groups.
• The welfare state is primarily financed by taxes; overall public spending is relatively high.

Question 12

conservative welfare states

Answer 12

• Contributions to a social insurance fund are tied to employment.
• developed in Germany
• Benefits are differentiated: vary levels of benefits, depending on the status of the labor associations.
• The government uses public tax money to supplement the fund.

Question 13

the first explanation of the development of welfare states

Answer 13

• With industrialization, traditional, community-based bonds of mutual assistance declined.
• People were exposed to things like industrial accidents and unemployment.
• They started demanding state assistance which increased size of the welfare state.

Question 14

the second explanation of the development of welfare states

Answer 14

explanation 2:
- Politicians create policies that get them votes.
- There are a lot poorer and middle-class people than rich people.
- By transferring resources away from the rich, politicians can court poor and middle-class voters: increases the size of the welfare state.

Question 15

the problems with welfare states

Answer 15

• Very high taxes can discourage investment and innovation.
• Generational Deficit: countries can amass debts that will have to be paid by younger generations.
• Fewer Incentives to Work: Workers are twice as likely to be on sick leave.

Question 16

politicians and welfare state

Answer 16

Incumbents target spending at constituencies they think they can swing – it tends to pay off.

Question 17

why are european welfare states bigger than the American welfare states

Answer 17

• Differences in attitudes: americans are more likely to believe that the poor are lazy.
• European countries tend to have proportional representation which allows small leftist parties to gain influence.
• The U.S. is more ethnically heterogeneous than almost any European country, and people are less likely to support redistribution those who ‘look different.’

Question 18

two types of development

Answer 18

• Economic: wealth accumulation and equality.
• Social and Human: life expectancy; race and gender relations, life satisfaction etc.

Question 19

the measure of economic development

Answer 19

gross Domestic Product (GDP) and GDP per capita is used as a measure of development.

Question 20

GDP

Answer 20

the value of all the goods and services produced in a given country and a given year.
(GDP per capita is the GDP per person.)

Question 21

PPP and GDP

Answer 21

• GDP and GDP per capita are often adjusted for purchasing power parity (PPP), which accounts for differences in the cost of living.

Question 22

causes of economic development

Answer 22

• market-led development
• state-led development

Question 23

market-led development

Answer 23

• as people and countries compete privately to maximize their own gains, society as a whole becomes better off.
• there was a big push toward market-led development in the 1980s and 1990s.

Question 24

state-led development

Answer 24

• sustained development requires a central actor than coordinate disparate agents and make long term plans.
• Dominated after WWII; it is an existing model in China; there is renewed enthusiasm for it in the West.

Question 25

free trade

Answer 25

• a big piece of market-led development
• a large majority of economists agree that free trade promotes economic development.

Question 26

comparative advantage

Answer 26

• main principle: some countries are more efficient at producing certain goods.
• Countries should produce the goods they can make most efficiently and they can trade for those goods they can’t produce efficiently.

Question 27

arguments against free trade

Answer 27

• With complete free trade, many people (temporarily) lose their jobs.
• Companies are incentivized to pay low wages to be
  competitive
• Some industries may need to be protected in the interest of national security.

Question 28

correlation between trade and economic development

Answer 28

Countries that trade more tend to have wealthier economic development.

Question 29

examples of market-failures

Answer 29

national defense
- The market would fail to produce national defense, because everyone could enjoy it equally regardless of what they pay.
- Solution: state-provided defense funded by forced taxation (nearly every country has implemented).

climate change:
- Emitters of greenhouse gases do not pay their full costs
- market failure is everyone is producing greenhouse gas emissions

Question 30

market failure

Answer 30

• when free markets do not maximize society’s well-being, there is a market failure.
• market-led economic development may work, but it can lead to suboptimal non-economic outcomes.

Question 31

correlations between economic openness and social/human development

Answer 31

the correlations between economic openness and indicators of social/human development are in a favorable direction but weak.

Question 32

gini coefficients and social/human development

Answer 32

Lower Gini coefficients (less inequality) tend to associate with better social/human outcomes.

Question 33

what does economic and social/human development need

Answer 33

open economies produce economic development, but reliable social/human development require some state involvement via the welfare state.