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Commanding Heights: The Battle of Ideas. Feedback Loop. Before we get going, let's please go around the room and have everyone share: One reaction to the movie i.e. I never realized how much economics impacts history One question that they have
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Feedback Loop • Before we get going, let's please go around the room and have everyone share: • One reaction to the movie • i.e. I never realized how much economics impacts history • 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 decision-making 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 negativeeffects 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?
