Basic Concepts in IPE Econ 101 for Political Scientists

Specialization, Balance of Payments, Macro-Economic Policy, & Currency Exchange

Today’s Discussion l  Brief Review & Follow Up l  What is IPE? l  Basic IPE Concepts l  The Balance of Payments l  Macroeconomic Policy

l  Fiscal Policy l  Monetary Policy

1. Brief Review & Follow Up The TPP as a Window into IPE

Labor Day The first Labor Day parade in the United States was held on Sept. 5, 1882, when 10,000 New York railroad workers took the day off to march from Union Square to City Hall. A U.S. holiday began in 1894.

•  FTA: 18,000 tariffs will be eliminated or cut.

•  One in 10 People: Home to 11% of global population

•  Major Traders: 40% of global production, 30% of global exports.

•  Background: Began with P4 agreement between Brunei, Chile, New Zealand and Singapore.

The Trans-Pacific Partnership is a 2,000 page Free Trade Agreement (FTA) between 12 Pacific Rim nations, which must be ratified by all parties.

http://www.harakenzo.com/images/tpp_worldmap_jp.png

Countries with Current U.S. FTAs (circa 2015)

www.nytimes.com

Who Is New for U.S.?

http://www.harakenzo.com/images/tpp_worldmap_jp.png

Five TPP countries do not already have FTAs with the United States

10 Reasons to Oppose the TPP 1.  Outsourcing U.S. Jobs Overseas: As many as 130,000

jobs will be lost to Japan & Vietnam. 2.  Losing U.S. Sovereignty: TPP tribunals will give

corporations the right to challenge U.S. laws. 3.  Threat to U.S. wages: Employers will “race to the

bottom” (Vietnam: $.56/hr minimum wage). 4.  Food Safety Standards: FDA inspection of only 1-2% of

food imports will allow contaminated food into country. 5.  Environmental Degradation: TPP tribunals would

undermine U.S. environmental laws. 6.  Threat to “Buy American” Laws: Under TPP, foreign

corporations would compete for government contracts. 7.  Drug prices will rise and availability will fall: TPP will

extend patents for Big Pharma, reinforcing monopolies. 8.  Boon for Wall Street, Bane for Main Street: TPP will

ban banking and capital controls. 9.  Reward for Bad Behaving Regimes: TPP benefits

Vietnam, despite poor human rights record. 10.  No Expiration Date, No Limits: The TPP can only be

altered by consensus.

10 Reasons to Oppose the TPP 1.  Losing U.S. Sovereignty: TPP tribunals will give

corporations the right to challenge U.S. laws. 2.  No Expiration Date, No Limits: The TPP is a “living

agreement” that can evolve to include other provisions. 3.  Lack of Transparency: The deal is being negotiated in

secret, with little info for U.S. legislators or public. 4.  Not About Free Trade: Focus on non-traded regulations

that will hamper U.S. competitiveness. 5.  Strange Bedfellows: TPP will allow China and possibly

Russia to be included. 6.  Gun Control: TPP could possibly allow controls on U.S.

gun industry. 7.  Outsourcing U.S. Jobs Overseas: As many as 130,000

jobs will be lost to Japan & Vietnam. 8.  Threat to U.S. jobs: Employers will “race to the

bottom” (Vietnam: $.56/hr minimum wage). 9.  Boon for Wall Street, Bane for Main Street: TPP will ban

banking and capital controls, favoring Wall St. 10.  World Government: TPP will move closer toward end

goal of an integrated world government. William F. Jasper

•  EXAMPLE: COUNTRY OF ORIGIN LABELING (COOL): In December 2015, the U.S. Congress repealed COOL after a series of decisions in WTO tribunals challenging U.S. laws requiring the labeling of national origins for such products as meat.

The Problem With Trade Tribunals An international tribunal could sanction practices that are otherwise deemed legal under domestic law.

U.S. Public Opinion on TPP In mid-2015, the U.S. public favored the deal but was less supportive than people in other nations, according the Pew Research Center.

U.S. Public Opinion on TPP The Pew study also showed that young people tend to have more favorable views about trade compared to older people.

•  On the “Fast Track”?: In May 2015, Congress approved Trade Promotion Authority (TPA) for President Obama to negotiate the deal, which only allows lawmakers to either reject it or ratify it.

•  Unlikely Prospects: With both Clinton and Trump opposed, the TPP appears unlikely to survive into the next administration.

•  Indifferent Public: A March 2016 poll found that 45% of Americans had no opinion.

Will the TPP Be Approved? TPP must be ratified by Feb. 2018 by at least 6 countries accounting for 85% of TPP economic output (U.S. & Japan must approve).

2. WTF is IPE? International Political Economy and You

Defining Political Economy

“Political Economy or Economics is a study of mankind in the ordinary business of life. “

—Alfred Marshall (1842-1924)

International Political Economy l  Domestic Political Economies:

IPE scholars analyze how different countries economy works.

l  International Political Economy: IPE scholars also analyze how economic relationships work between and among different countries in the global system.

Key Economic Actors l  Public sector: Domestic and

foreign governments l  Investors: Domestic and

foreign governments, financial firms/individuals

l  Producers: Domestic and foreign governments, firms/individuals

l  Consumers: Domestic and foreign governments, firms, and individuals

Key Questions l  What is and what should be the

role of the state in relation to markets?

l  What can and should be done to reallocate the distribution of wealth in a given society or across societies?

Key Viewpoints & Theories

l Mercantilism: State-focused economic model (realist theory)

l Liberalism: Market-oriented economic model (liberalism theory)

l Radicalism/Structuralism: Critique failures of states & markets (anti-system/structural theory)

Looking Ahead: Basic Concepts l  Production, specialization & trade

(comparative/absolute advantage) l  Balance of payments

(imports, exports, investments) l  Macro-economic policy

(fiscal, monetary) l  Currency exchange rates

(floating, managed, trade deficits)

4. Basic IPE Concepts The Wealth of Nations

A Great Dilemma

GDP (2012)

World Bank

Gross Domestic Product: Total goods/services produced by a country.

Nominal GDP=Rate of production at current rates for goods produced.

PPP Purchasing Power Parity: Currency value expressed in relation to the cost of a set of goods.

GDP Growth (2013)

The Economist

GDP Over Time By Region

Production & the Wealth of Nations l  GDP (Gross Domestic

Product): Total goods/services produced by a country.

l  GNP (Gross National Product): GDP plus net transfers of profits from firms and individuals operating abroad.

Ireland

GNP calculates the overseas profits of Irish companies that are repatriated to Ireland, and subtracts the profits of foreign multinationals operating in Ireland that are sent abroad. In most countries the two numbers are small, and broadly balance out. But because of Ireland's large FDI base and low corporate taxes, lots of big foreign companies make big profits in Ireland which they transfer back to their head offices. As a result, Ireland's GNP is as much as 25% smaller than its GDP. (The Economist, 2004)

GNP (2010)

http://chartsbin.com/view/10497

Concluding Thoughts/Questions

l Any Questions?? l Come to Office Hours l Concluding Quote:

n “The optimists will be right until they are wrong.”

—Wolfgang Munchau, Financial Times columnist, 11/12 2006