Transcript CH_1 - serviceandleadership

Commanding Heights:
The Battle of Ideas
Feedback Loop
• Before we get going, let's please go around the room and
have everyone share:
o One reaction to the movie
 i.e. I never realized how much economics impacts
history
o One question that they have
 i.e. I don't really understand that scene in Germany
with the lifting of price controls and goods coming to
market, but I can tell it's awesome and very
important. Please explain it in more detail.
Definitions
Macro-Economics
Branch of Economics that studies the behavior and decisionmaking of entire economies, using aggregated indicators such
as unemployment, GDP and prices to understand how the
whole economy functions.
Micro-Economics
Branch of economics primarily focused on the actions of
individual agents, such as firms and consumers, and how their
behavior determines prices and quantities in specific markets.
Definitions
Inflation
A rise in the general level of prices of goods and services in an economy
over a period of time. When the price level rises, each unit of currency
buys fewer goods and services; consequently, inflation is
also an erosion in the purchasing power of money.
Inflation can have positive and negative effects on an
economy. Negative effects of inflation include loss in stability in
the real value of money and other monetary items over time; uncertainty
about future inflation may discourage investment and saving, and high
inflation may lead to shortages of goods if consumers begin hoarding out
of concern that prices will increase in the future.
Positive effects include a mitigation of economic recessions,and debt
relief by reducing the real level of debt.
Keynes vs. Hayek
Keynes
• Government should spend money during a depression.
• Spending money reduces unemployment, which increases
tax revenues.
• It’s not great, but it is ok to accumulate government debt and
to have a small amount of inflation.
• The economy is like a high performance machine that can
be adjusted by skilled technocrats.
Keynes vs. Hayek
Hayek
• Too much government control over the economy is a bad
thing, because it leads to more government control.
• Too much government control generally which leads to a
reduction in freedom.
• The economy is more like a natural force (think wind, water,
etc.) - we cannot tame it; when bad things like recessions
happen we just have to ride them out.
Discussion
Think about today’s current events.
Do you see the influence of Keynes? Of Hayek?
Definitions
Capitalism
An economic and political system in which a country's
trade and industry are controlled by private owners for
profit, rather than by the state.
Socialism
An economic and political system advocating public or
direct worker ownership and administration of the means
of production and allocation of resources, and a society
characterized by equal access to resources for all
individuals with an egalitarian method of compensation.
Definitions
Planned Economy
An economic system in which the central government
makes all decisions on the production and consumption
of goods and services.
Market Economy
An economic system in which production, distribution,
pricing, and investment decisions are made by the
private owners of the factors of production based upon
their own interests rather than upon furthering some
overarching macroeconomic plan.
Discussion
Do you have to have a free market to have a democracy?
Do you have to have democracy to have a free market?
How do capitalism and democracy compliment each other?
Definitions
Wage and Price Controls (Incomes Policy)
Government policies dictating the price for which goods
and services can be sold.
Black Market (Underground or Shadow Economy)
A market where all commerce is conducted without regard to
taxation, law, or regulation of trade. It is generally smallest in
countries with the greatest economic freedom, and vice versa.
Discussion
When Erhard abolished price controls on German goods, their
economy began producing again.
Why and how did this happen?
Definitions
Stagflation
Persistent high inflation combined with high unemployment and
stagnant demand in a country's economy.
Gross Domestic Product
The total value of goods produced
and services provided in a country during one year.
Discussion
Think for a minute about the coal miners striking in England;
they must have believed strongly in their opinions to go through
a year-long strike.
Does anyone in class sympathize with them?
Is it a good idea for a Government to put money into an
industry, assuming these actions create jobs but also make the
industry inefficient?
If so, why? If not, is it ever a good idea?
Did the British Government have any responsibility to the
striking miners?
Discussion
What do you think about Thatcher and Reagan’s leadership
styles? Did they have a vision? Was it shared?
Discussion
Keynes said, “If expenditure on armaments really does cure
unemployment, then a grand experiment has begun. Good may
come out of evil.”
What do you think about this statement?