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Should higher authorities which resist the expansion of markets act to override the preferences of
individuals and organisations
markets under perfect competition are allowing individuals to pursue their own interests and
satisfy their own preferences given some constraints (such as endowments and skills however
these are objective in their worth)
although some might argue that that regulations can reach a more superior outcome than that
of a free market, especially to domestic supply
Advantages of globalisation
globalisation improved standards of living, particularly in developing and emerging countries
leading to an expansion of the global middle class
globalisation has reduced world inequality such as the Gini co-efficient of the world economy
improved
economic globalisation leads to higher cultural and political integration
trade enhances the division of labour as countries specialise, economies of scale and efficiency
competitive markets reduce monopoly profits and incentivise business to seek cost reducing
innovations on what they sell
Disadvantages of globalisation
anti-corporation and anti-capitalist, against expansion of markets due to commodification and
consumerism
anti political integration against global governance perceived as inevitable unaccountable and
undemocratic
anti-cultural integration
o against cultural imperialism (colonialism, misappropriation, ethnocentrism)
o against corrosive influence of neoliberal individualism
environmental argument continuous economic growth and market expansion can be a negative
influence on society
can lead to high inflation due to strong demand for food and energy, acts to influence
macroeconomic stability due to interdependence
structural unemployment in certain industries due to cheaper labour being provided in other
countries
Methodological individualism
explains social phenomena through the idea of individual motivations and actions
weberian sociology (interpretive explanations, theory of ideal-types)
looks for micro foundations in order to form a basis for ideas
rational choice theory and game theory identifies the collective action problem
Methodological collectivism
emphasis on collective agency and on the constraints and regulating human actions
functionalism are parts of a social system which must have a function/role/purpose
there is no sense of individual agency
Equilibrium
in the long run markets reach equilibrium
o Keynesian: free markets are volatile and not always self correcting, movement towards
the equilibrium in the long run takes time and so government intervention may be
appropriate
free market is naturally prone to periods of recession and depression
o Laissez faire economics says that in the absence of external intervention, markets move
back towards equilibrium and that government often has unintended consequences
Banking sector
there is a moral hazard where bankers might be willing to take more risks than optimal if
losses are socialised while gains are privatised, meaning that the negative impact wouldn’t be
focused on them
in response to the internet bubble the FED, adopted a lax monetary policy which ignored
inflated asset markets, which left the economy susceptible to the impact
global imbalances form excessive private and government consumption, Chinese government
policy, liberalisation of financial markets all resulted in a large unavoidable global impact
politicians prefer economic growth due to their greater chance of being re elected as a result
Debates between
short run vs long run, should economic growth rely on indiviudals and markets or on
governments
four solutions
o 1) government intervention in the short run, market based economy in the long run
compatible with both austerity and stimulus depending on how successful the
short run is
this can be seen to initially boost the economy to get some initial growth which
may have been impossible without some sort of stimulus
o 2) market based economy in short and long run
this is on the side of austerity due to the lack of government spending
o 3) government intervention in short and long run
allows for considerable stimulus
although this can lead to large levels of debt to occur and this in the long run can
hinder growth and future prospects
o 4) market based economy in the short run, government intervention in the long run
(purely theoretical approach)
this would not be appropriate as this leaves the economy to start it self up then
supports it, this would likely be the wrong way to address the problem
Economic Growth
according to neoclassical economists aggregate GDP depends on
o supply side (technology, stock of capital, size of labour force)
o demand side (labour leisure, individual preferences, government)
growth typically takes place in this way and does not take place in a linear, homogenous and
even way
o improved technology -> increased labour productivity -> more output -> higher wages
o more consumption due to higher wages and so more demand -> more money for R&D
economic growth is inherently not smooth and prone to fluctuations, It is often uncertain and
that various sectors are important in order to allow growth to happen
Neo-classical growth
classic economists tend to see the leisure labour choice as a substantial barrier against
economic growth
neoclassical economists assume preferences to be exogenous and stable, there is also an
underlying assumption that individuals from their preferences autonomously
Jean Baptiste Say argued that AS creates an equal amount of AD,
the neoclassical model aims to separate economics from the stances of the 19th century
classical economists and so the development of the general equilibrium model
although from a normative standpoint the neoclassical economics concludes that the
overriding of individual preferences lowers welfares