Political economy Lecture 1 An introduction

1. Political economy Lecture 1 An introduction Jan Fałkowski Faculty of Economic Sciences, University of Warsaw February-June 2010

2. Outline • Basic information about the course • General overview • Salient questions • Some historical background • Political economy nowadays

3. Basic information about the course • Jan Fałkowski • jfalkowski@wne.uw.edu.pl • Office hours: fridays 13:30-14:30, room 401 • Writtenexamination • Youhave to recievepositivemark for tutorials • Dr Katarzyna Metelska-Szaniawska, kmetelska@wne.uw.edu.pl • Fridays, 11:30-13:05, room 104

4. General overview – aims of the course • In general: • Providea broad introduction to current research in political economy • More specifically: • Try to highlight • the impact of politics on economic processes and outcomes, • and the reciprocal influence of economic conditions on political life • Overview of thesyllabus

5. General overview – salient questions • Why do we observe such a variation in economic policies around the world/over time? • Why and how institutional reform can be undertaken? • What if we adopt the view that state has its own objective function/represent the interests of some groups in the society (landlords, workers, etc.)? • What if we accept the notion that constitutions & democratic rules are themselves equilibrium outcomes?

6. General overview – historical background • Precursor: Antoine de Montchretien 1615, Traite de l’economie politique • Starting from late XVIIth century (Adam Smith, David Ricardo) political economy synonymous with economics • Closely related to philosophy • Still influential in the beginning of XXth century • Fathers of neoclassical economics still writing books with ‘political economy’ in the title and teaching political economy (Menger, Marschall, Jevons, Pareto)

7. General overview – historical background • Economics organising itself into fields in early XXth century • Political economy defined a separate field in 1950s • Anthony Downs (1957) „An Economic Theory of Democracy” • Kenneth Arrow (1951) „Social Choice and Individual Values” • Discussion of comparative economic systems (1930s and 1940s) • O. Lange, F. A. von Hayek, J. Schumpeter • The Marxist project of social analysis • ask your parents to name the most difficult/boring subject during their studies…

8. General overview – political economy nowadays • What is political economy now? • Interesting mixture • things that have too much politics to be economics, too much history to be politics, too much sociology to be history, and too much economics to be sociology • One of the most exciting and most lively field in economics (observe the future nobel prize winners in economics)

9. General overview – political economy nowadays • In general: • Complementing the focus of welfare economics (optimal policies) with institution design and policy implementation • Strong microfoundations • Interdisciplinary approach • Number of assumptions from neoclassical economics rejected (fully rational agent, perfect information, etc.) • Importantly drawing from „insitutional approach”

10. General overview – political economy nowadays, theory • Three separate pillars (Persson & Tabellini) • theory of macroeconomic policy • rationality, micro-foundations, but naive politics • public choice • agency, constitutions, interest groups, but naive methods • rational choice (political science) • collective choice procedures, but naive approach to policy • Gradual improvements on theoretical front: combining best of three approaches

11. General overview – political economy nowadays, empirics • Early work suffered from two problems (P&T) • tests of theory not very precise • lack of institutional detail • Gradual improvements on empirical front • more solid theoretical foundations • better data • concern with identifying causal effects: micro-econometrics • appreciation of findings in empirical political science

12. General overview – main actors • Voters • Why do they vote/abstain? How do they vote? • Politicians • Who chooses to become politicians? What motivation do they have to run for office? • Parties • What is political market structure? What policy platforms do they offer? Who do they appeal to? • Governments • How is it formed? What actions it undertakes?

13. General overview – main research fields • Actions of governments as consequences of political forces enabling acquiring and maintaining power • General equilibrium theory of political economy • All political variables endogenous, being outcomes of decisions of individuals • political vars. – legislature, politicians (candidates), interest groups, governments, policies, constitutions

14. General overview – tutorials • Broad overview of the political economy literature • Discussing number of issues related to development economics, macroeconomics, welfare economics, public economics, international economics

15. Thank you for your attention &see you next week