Transcript File - Introduction to Comparative Political Economy and

Essentials of Comparative Politics, Chapter
4
Political Economy
Economy

Political economy: the study of how politics and
economics are related and how their relationship
shapes the balance between freedom and equality

Made up of markets and property,public
goods, social expenditures, taxation,
money/inflation/unemployment, regulation,
and trade
Markets and Property

Markets: the interactions between the forces of
supply and demand, and they allocate resources
through the process of that interaction

Creates values for goods and services by arriving at
specific prices

Emerge as a community of buyers and sellers in
constant interaction through the economic choices
they make

Property: the ownership of goods and services
exchanged in the market
Public Goods

Public goods:goods, provided or secured by the
state, available to society and which no private
person or organization can own

States differ in large extent as to what they provide,
because of role of ideology between state and
market
Social Expenditures

the state's provision of public benefits, such as
education, health care, transportation

Can be very costly
Taxation


provides money for public goods and expenditures
Some see it as stealing of hard-earned revenues;
others see it as critical for a basic level of equality
Money, Inflation, and Unemployment


Money-medium of exchange
State has much influence over domestic economy,
through central bank: institution that controls how
much money is flowing through the economy



Actions of central bank tied to inflation and
unemployment
Inflation: when prices rise and money loses its
value
Deflation: when too many good are chasing too
little money
Money, Inflation, and Unemployment


Money-medium of exchange
State has much influence over domestic economy,
through central bank: institution that controls how
much money is flowing through the economy



Actions of central bank tied to inflation and
unemployment
Inflation: when prices rise and money loses its
value
Deflation: when too many good are chasing too
little money
Trade


Most states do not have only local markets; must get
some goods elsewhere
Regulation of trade:

Generates state revenue

Protects local jobs

Promotes competition

Keeps the costs of goods low
Political Economic Systems



The actual relationship between political and
economic institutions in a particular country
Differ in idea of relationship between state and
market
Liberalism, social democracy, communism,
mercantilism
Liberalism



High priority on individual political and economic
freedom
Limited state involvement in economy
Foundation in capitalism: system of private
property and free markets
Social Democracy


Draws from liberalism and communism in an
attempt to balance too much freedom and equality
Believe in private property, but also public goods
Communism

Eliminates individual freedom to achieve equality

Entire economy is public good
Mercantilism

Focuses on need of the state, not needs of the society

Limits social expenditures

Low interest rates of central bank to encourage
borrowing
Measuring Wealth


Gross domestic product (GDP): total market value
of all goods and services produced within a country
over a period of one year
Purchasing-power parity (PPP): attempts to
estimate the buying power of income in each
country by comparing similar costs, using prices in
U.S. as a benchmark
Measuring Inequality and Poverty


Gini index: mathematical formula that measures the
amount of economic inequality in a society
Human development index (HDI): looks at the
overall outcome of that wealth to decide the wellbeing of a country's people