Political Economy

Units

1. 1

   Collective action and public goods

   3 lessons

   1. Olson and the free riderShow why a group that would gain from a public good may still fail to provide it, using Olson's logic of collective action, a payoff matrix and the effect of group size and selective incentives.
   2. The median voterUse Downs's spatial model to show why two vote-seeking candidates move toward the median voter on a left-right line, and name what the model leaves out.
   3. Bargaining and veto playersUse Nash's and Rubinstein's bargaining models to explain how a surplus is split, then use Tsebelis's veto players to show how each added veto player shrinks the set of policies that can replace the status quo.
2. 2

   States and markets

   3 lessons

   1. Property rights and credible commitmentExplain North and Weingast's argument that the Glorious Revolution of 1688 made the English crown's promises credible, so that it could borrow more cheaply, and weigh the evidence and its critics.
   2. War, taxation and state capacityExplain Charles Tilly's claim that war made the state in Europe, use Britain's income tax of 1799 as a case, and use tax revenue as a share of GDP to ask why some states have low capacity.
   3. Externalities, monopoly and interventionShow with supply and demand why markets can fail through externalities and monopoly, how a Pigouvian tax corrects an externality, and why Stigler's capture theory says the regulators may serve the industry.
3. 3

   Varieties of capitalism and welfare states

   3 lessons

   1. Liberal and coordinated market economiesExplain Hall and Soskice's contrast between liberal and coordinated market economies, use Germany's apprenticeship system as the case, and say how institutional complementarities shape what each kind of economy does well.
   2. Three worlds of welfareDescribe Esping-Andersen's liberal, conservative and social democratic welfare regimes, read social spending and a decommodification score for the US, Germany and Sweden, and say what the typology leaves out.
   3. Where welfare states came fromNarrate the origins of the welfare state from Bismarck's insurance laws of the 1880s to Beveridge's 1942 report and the 1948 NHS, and compare the power resources, Catholic and state-strategy explanations against the timing of the first pension laws.
4. 4

   Institutions and development

   3 lessons

   1. Colonial origins of institutionsExplain Acemoglu, Johnson and Robinson's settler mortality argument that colonial strategies set lasting institutions, read the link between protection from expropriation and income per head, and weigh the reversal of fortune and the main criticisms.
   2. Does democracy bring prosperity?Explain Lipset's modernization thesis and Przeworski's finding that income sustains democracy but does not cause it, read a chart of democratic survival by income, and weigh the evidence on whether democracy raises growth, using Singapore and India.
   3. Autocrats and the selectorateExplain Bueno de Mesquita's selectorate model with nested circles of selectorate, winning coalition and leader, show with arithmetic why small coalitions favour private goods and kleptocracy while large ones favour public goods, and classify regimes by the sizes of the coalition and the selectorate.
5. 5

   Corruption, oil and aid

   3 lessons

   1. The politics of corruptionExplain corruption as a principal-agent problem among voters, politicians and bureaucrats, read the Corruption Perceptions Index for a range of countries, and trace the case of Italy's Mani Pulite investigations from 1992.
   2. Oil and the resource curseExplain Michael Ross's argument that oil promotes authoritarianism through rentier states, Dutch disease and the volatility of oil income, using the path of oil price and Nigerian income per head, and contrast Nigeria with Norway's sovereign wealth fund.
   3. Foreign aid and its limitsCompare the Marshall Plan with aid to sub-Saharan Africa, set out the debate between Sachs's big push and Easterly's critique of planners, and use a chart of aid flows and the Burnside and Dollar result to explain why aid appears to work only under certain institutions.
6. 6

   The politics of trade

   3 lessons

   1. Stolper-Samuelson and factor conflictExplain the Heckscher-Ohlin and Stolper-Samuelson results that trade helps the abundant factor and hurts the scarce one, work a numerical example, and apply Rogowski's predictions of land, labor and capital coalitions to the repeal of the British Corn Laws.
   2. Ricardo-Viner and sector conflictExplain the specific-factors model in which capital is stuck in an industry so that trade conflict follows sector and not class, contrast it with Stolper-Samuelson using Hiscox's argument on factor mobility, and show who lobbies for and against protection in exporting and import-competing sectors.
   3. Tariff politics and institutionsExplain how logrolling in Congress produced the Smoot-Hawley tariff of 1930, how the Reciprocal Trade Agreements Act of 1934 delegated tariff-making to the president, and read the path of US tariff rates from 1890 to 1940 to see how institutions shape trade policy.
7. 7

   Money and finance

   3 lessons

   1. Exchange-rate regimes and the trilemmaExplain the impossible trinity, that a country cannot have a fixed exchange rate, open capital flows and independent monetary policy at once, and show how the gold standard, Bretton Woods, floating rates and the euro each give up one of the three.
   2. Currency and debt crisesDate and compare Black Wednesday in 1992, Mexico in 1994, Asia in 1997 and Argentina in 2001, read the fall of their currencies in a chart, and explain why governments defend pegs for political reasons until they cannot.
   3. Central banks and inflationExplain the time inconsistency argument for central bank independence, follow the Bundesbank and Volcker's 1979 shock, and read a scatterplot of central bank independence against inflation across rich countries.
8. 8

   Globalization and backlash

   3 lessons

   1. Waves of globalizationDescribe the waves of globalization since 1870, the gold standard era, the interwar collapse, Bretton Woods and the post-1990 surge, read the share of exports in world income, and explain the roles of technology and policy in each wave.
   2. The China shockExplain Autor, Dorn and Hanson's finding that import competition from China after 2001 caused large and lasting job losses in exposed local US labor markets, read the data on China's export growth and US manufacturing employment, and link the losses to political change by 2016.
   3. Embedded liberalism and the backlashExplain Ruggie's embedded liberalism of the postwar order and Rodrik's trilemma of hyperglobalization, democracy and national sovereignty, apply them to Brexit and to the rise of populism, and weigh other explanations of the backlash.