Econ & heg in debate

1. Econ & hegin debate

2. Part One Economics

3. What is Economics? • The study of how we use limited resources to meet unlimited wants • This means that SCARCITY is at the heart of our understanding of modern economics

4. “Invisible Hand” • Ascribed to Adam Smith (who was not necessarily a capitalist) • Claims that markets direct individual self-interest towards socially desirable outcomes • Has become the foundation of free market capitalism

5. “Capitalism” • Economic system based on the private ownership of the means of production • Is driven by the production of goods and services for a profit • Types of capitalism • Mercantilism • Free-market economy • Social market economy • State-ownership • Mixed economy

6. “Socialism” • Economic system based on collective ownership of the means of production • Is driven by the production of goods and services to meet social needs • Covers a variety of sociopolitical systems • Anarchism (libertarian socialism) • Authoritarian communism • Democratic socialism • Syndicalism

7. “Supply & Demand” • Describes how many markets determine prices • If supply increases relative to demand, prices DECLINE… • If supply decreases relative to demand, prices INCREASE • If demand increases relative to supply, prices INCREASE • If demand decreases relative to supply, prices DECREASE

8. “Elasticity” • Describes the degree to which one economic variable affects others • ELASTIC variables exhibit large responses to relatively small changes in another variable • INELASTIC variables exhibit small responses to relatively large changes in another variable

9. “GDP”—Gross Domestic Product • Value of expenditures on final goods and services • U.S. GDP has increased steadily—when you hear about “economic growth”, they are usually referencing GDP • ‘Recession’ means 6 months (2 quarters) of negative growth • GDP as a measure of economic performance can be misleading—non-monetarized labor, shift of non-monetarized labor into the market

10. “Keynesianism” • School of economic thought arising from the ideas of John Maynard Keynes • Claims that markets often produce inefficient outcomes that can/should be corrected by government intervention • Interventionary instruments include • Fiscal policy • Monetary policy • Debate about effectiveness usually centers on interpreting the effectiveness of FDRs response to the Great Depression

11. “Supply Side Economics” • Theory that economic growth should be stimulated by lowering barriers to production • Generally means lowering tax rates on income (individual and corporate) and capital gains • Strongly associated with “Ronald Reagan” and “trickle down economics”

12. “The Markets” • Commodities: exchange, in bulk, of everything from orange juice to petroleum—include both ‘spot’ and ‘futures’ contracts • Currency: exchange of different national currencies • Debt: issuance and trading of bonds (promises to pay in the future) • Equity: issuance and trading of stocks (shares in a company)

13. “Competitiveness” • Describes the ability of a particular group (company, sector, nation) to sell goods in a given market RELATIVE to other groups in the same market • Competitiveness expresses profitability, which is directly tied to income, wealth, etc. • EXP: Saudi vs. tar sand oil production

14. “Productivity” • Describes the efficiency of production • Productivity increases when greater output becomes possible with the same input • Often couched in terms of “worker productivity”, but is also a measure of technological efficiency • Growth rates of 1-2% are good

15. “Exchange Rates” • Rate at which one currency is exchanged for another and/or the value of one nation’s currency in terms of another currency • Appreciation: increase in value of a currency relative to others—benefits consumers and hurts producers, ceteris paribus • Depreciation: decrease in value of a currency relative to others—benefits producers and hurts consumers, ceteris paribus • Currencies typically are pegged, floating, or mixed

16. “Employment Rate” • Is usually expressed in terms of ‘unemployment’ • The official unemployment rate is 7.6%--percentage of the workforce that is seeking employment but is unable to find a position • Including the number of people who are no longer actively seeking employment takes the rate up to 15%+ • ‘Normal’ unemployment levels are between 4 and 6 percent

17. “Inflation” & “Deflation” • Inflation: rise of general level of prices of goods and services over time • Deflation: decline of general level of prices of goods and services over time • PREDICTABILITY is key, although economies tend to do best with relatively low, steady inflation (1-4%) • Deflation, over any extended period, and hyper-inflation can quickly wreck economies

18. “Interest Rates” • Rate at which interest is paid by a borrower to a lender for the use of money • Are important because they directly affect consumer spending, the housing market, etc, and thus impact all financial markets • Key interest rates are: • Federal funds rate (rate for overnight, uncollateralized loans between banks) • Prime rate—general FFR+3% • Are generally linked to inflation on an inverse basis • Stagflation!

19. “Confidence” • Consumer confidence: expression of consumer sentiment about the current and future status of the economy • Often used as a predictor of future consumer behavior • Particularly important because consumer spending makes up over two-thirds of the economy • Business confidence: expression of business sentiment about the current and future status of the economy • Often used as a predictor of future business behavior (hiring, tech investment)

20. “Income (in)Equality” • Expression of the relative distribution of income (and wealth) across the population • Is highly variable, both across time and between countries • Income inequality is growing rapidly in the U.S.

21. National Debt • Governments usually borrow through the use of bonds • U.S. national debt has two parts • Public debt—securities held by non-federal investors ($12T) • Inter-Government debt—IOUs held by federal accounts on other federal entities ($5T) • Influences interest rates, and more broadly, market sentiment

22. Oil Prices • Influence the economy—a little bit

23. Dedev • Premise 1: economic collapse is inevitable • Premise 2: collapse sooner is better than collapse later

24. Part 2 Leadership

25. Major US Foreign Policy Schools • Realist Maximalists • Neoconservatives • George H.W. • Realist Minimalists • Isolationists • Offshore balancers (Layne) • Liberal Maximalists • Wilsonians (spread democracy around the world) • Clintonians (power used in the spread of ideals) • Liberal/Constructive Minimalists • Fukuyama (let markets do their work) • Diamond (let freedom do its work politically)

26. Measuring Hegemony • How does one define hegemony? Easiest definition is holding a preponderance of power relative to other states—power as a goal of states, a measure of influence, an outcome of victory, control over resources and capabilities • Hegemony can be measured along several axes • Military power (power projection)—ability to enforce your will through military might • Economic power—ability to pay for militaries, bribe allies, exert pressure on other states • Cultural power—attractiveness of yoru way of life • Ideological power—attractiveness of your ideas

27. Polarities • The international system is often describes as having “poles,” conglomerations of power around one or more states • Apolar (no dominant power) • Unipolar (one dominant power) • Bipolar (two competing powers) • Multipolar (multiple competing powers) • Hegemony can also be described in terms of global and regional influence

28. Status of the Current System • Major powers (global influence) • Middle powers (global prominence, regional influence) • Other states of influence

29. Major Powers • China • European Union • France • Germany • Great Britain • Japan • Russia • United States

30. Middle Powers • Australia • Brazil • Canada • Egypt • India • Indonesia • Iran • Israel • Italy • Pakistan • South Africa • South Korea • Turkey

31. Other States of Influence • Oil Producers (Iraq, Kuwait, Saudi, Venezuela) • High Population States (Bangladesh, Mexico) • Emerging Regional Powers (Ethiopia, Nigeria, Vietnam, Thailand) • Major Aid Providers (Nordic states, Netherlands)

32. Is the U.S. a Hegemon? • Military Power • Outspends the world • Unmatched power projection capabilities (aircraft, carriers, missiles) • Unmatched surveillance capabilities • Unmatched technological edge (smart weapons, space weapons, etc) • Large population base from which to draw soldiers)

33. The U.S. [cont’d] • Economic Power • One-fourth of the world’s gross product • Center of technological innocation • Most important banks and stockmarkets • Massive corporate power • Huge trade flows—mutual dependenceis • Magnet for high-skilled labor from other countries • Vast personal wealth

34. The U.S. [cont’d] • Cultural Influence • Media • English language (2 billion speakers/learners) • Pop culture

35. The U.S. [cont’d] • Ideological Influence • Democratic attractiveness • Free markets • Reputation [does Obama fix this?]

36. Sustainability of Hegemony • Equilibrium theory says that powers will be balanced, and various theories of decline argue that a state can only remain dominant for so long before it loses the economic, military, and/or political capacity to do so • That raises the question—who might replace the U.S. as a unipolar power, or challenge the U.S. in a bi- or multi-polar system?

37. Contender #1: European Union • Pros • High degree of soft power • Large population • Powerful economy • Strong education system • Powerful corporations • Relatively large collective military • Cons • Military is weak, out-dated, and relatively poorly trained • Lags in miltiary tech development • Aging population • Lack of unified decisionmaking structures

38. Contender #2: China • Pros • Huge population • Surging economy and manufacturing capacity • Large military • Strong central government • Desire to lead/have a presence on the global stage • Cons • Population strains and population aging • Relative lack of tech innovation, esp. in military matters • Fragile central government • Economic development is subject to outside disruption • External resource dependence • Lack of military power projection capability

39. Contender #3: Japan • Pros • Tech innovation • Robust economy • Access to military tech goodies • Cons • Tough neighborhood, not popular with neighbors • Aging, declining population • External resource dependence • Inward-focused security culture

40. Contender #4: Russia • Pros • Big military • Huge resource base • Continental footprint • Strong central government • Cons • Aging, declining, drunken population • Suspicious neighbors • Internal factionalism

41. Contender #5: India • Pros • Large number of well-educated persons • Huge population (big army!) • Cons • Population pressures • High rates of rural poverty • Lack of wealth

42. Other Potential Powers • Brazil • Indonesia • Iran • Nigeria • Pakistan