ECON-21 - Lecture notes 1-10 PDF

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ECON 21 WHAT IS ECONOMICS...

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Economic growth ─ ● Increase in real national income / national output. ● GDP is a measure of the national income / national output and national expenditure. It basically measures the total volume of goods and services produced in an economy. ● A measurement of the increase in an economy's output. ● These quantitative changes are measured in finite terms by using the percentage increase of the country's gross domestic product. Economic growth typically does not take into account factors that are not part of the formal economy. Economic development ─ ● An improvement in the quality of life and living standards, e.g. measures of literacy, life-expectancy and health care. ● Development looks at a wider range of statistics than just GDP per capita. ● Development is concerned with how people are actually affected. It looks at their actual living standards and the freedom they have to enjoy a good standard of living. ● Measuring economic development is not as precise as measuring GDP because it depends on what factors are included in the measure. ● Economic development focuses on increasing intangible results, such as systemic changes, standard of living, and overall self-esteem in an economy, indicating an upward movement of an entire social system. The scope of economic development is far broader than that of economic growth. It is possible to have economic growth without development. i.e. an increase in GDP, but most people don’t see any actual improvements in living standards. How do the two work in relation to one another? The work performed by economic development will lead to many qualitative changes in an economy, which will in time have an impact on the overall output. Positive change in economic development can lead to economic growth, which leads to a direct relationship between the two. Economic growth can be viewed as an overarching goal of economic development, though development has a number of specific stepping stones to get to first.

Economic Systems 1. Capitalism ─ opposed to government intervention; A free-market produces the best economic outcome for society. Each person or business acts in their own best interests and seeks to maximize profit through their decisions. Influential Leader: Adam Smith 2. Socialism ─ the means of production, such as money and other forms of capital, are owned by the state (the government) or public. promotes public ownership and control of property and natural resources over private ownership and control. It was based on the idea that groups of people should own and regulate the economy for the benefit of all members, not just a few. A socialist economic system operates on the premise that what is good for one is good for all. Everyone works for their own good and the good of everyone else. 3. Communism ─ also known as a command economy, is an economic system in which the government owns the majority of the factors of production and controls resource allocation and the products and services provided. Influential Leader in the development of Socialist and Communist theory: Karl Marx

Economic Development Theories and Ideas 1. Mercantilist ● Mercantilism was an economic system of trade that spanned from the 16th century to the 18th century. ● Mercantilism was based on the idea that a nation's wealth and power were best served by increasing exports and so involved increasing trade. ● Under mercantilism, nations frequently engaged their military might to ensure local markets and supply sources were protected, to support the idea that a nation's economic health heavily relied on its supply of capital. ● Strived for a trade surplus or exports exceeding imports, prohibited the use of foreign ships for trade, and maximized the use of domestic resources in general. ● Fewer imports mean less competition and higher prices. 2. Physiocrats ● Group of economists who believed that the wealth of nations was derived solely from agriculture. ● Physiocracy means “Rule of Nature'. ● Characterized chiefly by a belief that government policy should not interfere with the operation of natural economic laws and that land is the source of all wealth. 3. Scholastics

4. Adam Smith ● The philosophy of free markets emphasizes minimizing the role of government intervention and taxation in the free markets. ● He viewed government regulation as potentially detrimental to economic growth. ● Smith’s laissez-faire (French for “let it/them do”) approach to economic policy in the 18th-century came at a time when governments discouraged international trade. ● From Smith comes the idea of the "invisible hand" that guides the forces of supply and demand in an economy. According to this theory, by looking out for themselves, every person inadvertently helps create the best outcome for all. 5. David Ricardo

● Theory of comparative advantage, which argued that countries can benefit from international trade by specializing in the production of goods for which they have a relatively lower opportunity cost in production even if they do not have an absolute advantage in the production of any particular good. ● The labor theory of value states that the value of a good could be measured by the labor that it took to produce it. The theory states that the cost should not be based on the compensation paid for the labor, but on the total cost of production. One example of this theory is that if a table takes two hours to make, and a chair takes one hour to make, one table is worth two chairs, regardless of how much per hour the makers of the table and chairs were paid. The labor theory of value would later become one of the foundations of Marxism. 6. Thomas Malthus ● The theory states that food production will not be able to keep up with growth in the human population, resulting in disease, famine, war, and calamity. ● Human progress is impossible without strict controls on reproduction. ● Malthusian economics advocates for population control to avert unsustainable growth rates. ● When basic needs are not provided, development stalls, and economies begin to deteriorate. ● Labor productivity losses due to hunger can lead to a decrease in per capita GDP. ● Food security affects economic growth by influencing life expectancy, total employment, and poverty. 7. Karl Marx ● Marxian economics is a rejection of the classical view of economics developed by economists such as Adam Smith. ● Under the capitalist economic model, he argued that the ruling class becomes richer by extracting value out of cheap labor provided by the working class. ● Economic decisions, he believes, should not be determined by producers and consumers but rather by the state to ensure that everyone benefits. ● Marx claimed there are two major flaws in capitalism that lead to exploitation: the chaotic nature of the free market and surplus labor. ● He argued that the specialization of the labor force, coupled with a growing population, pushes wages down, adding that the value placed on goods and services does not accurately account for the true cost of labor.

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Eventually, he predicted that capitalism will lead more people to get relegated to worker status, sparking a revolution and production being turned over to the state.

8. John Maynard Keynes ● Keynesian economics is a macroeconomic economic theory of total spending in the economy and its effects on output, employment, and inflation. ● Keynes advocated for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression. ● Keynesian economics focuses on using active government policy to manage aggregate demand in order to address or prevent economic recessions. ● Keynes developed his theories in response to the Great Depression, and was highly critical of previous economic theories, which he referred to as “classical economics”. ● Activist fiscal and monetary policy are the primary tools recommended by Keynesian economists to manage the economy and fight unemployment. 9. Jean Sismondi ● supported Adam Smith and the laissez-faire approach to trade. ● The classical economists believed that political economy was the science of wealth or chrematistics. Sismondi felt that economics was not the science of wealth but its main object was man or the physical well-being of man. ● To classical economists, it is the increment of wealth which spells the well-being of the society and its members.But Sismondi points out that the object really is to increase happiness of the members of the society. He advocated the way of increasing human happiness. He gave importance to distribution more than the theory of production. ● Over-production was considered by classical economists as indicative of general prosperity. But Sismondi believed it to be a great evil caused by maladjustment. ● He condemned over-production as it created unemployment, reduced the purchasing power of people, and caused an acute distress. ● Sismondi did not believe in harmony of social interests. He was one of the early economists to speak of the existence of two social classes, the rich and the poor, the capitalists and the workers. ● Sismondi wanted population to be in such proportion to wealth as would ensure the maximum human welfare. Sismondi disapproved the Malthusian theory of Population. According to him, it was the inability to get work and not the means of subsistence that limited the rise of population.

● Sismondi was against inventions and machines because they lead to evil consequences. His view was that the introduction of machinery reduces consumption and slackens demand. ● Sismondi considered that a capitalist industry was necessary for the material happiness of the people. But he opposed concentration of wealth in the hands of a few. He gave a comprehensive exposition of the law of capital concentration which led to pauperism; and the separation of property from toil created evil consequences. ● Sismondi criticized the classical view that competition, in general, was beneficial to the people. Competition means race among the producers for increasing sales by lowering prices. Prices can be lowered by reducing costs and in their bid to reduce costs, the producers are inclined to cut wages and to employ children and women workers and to lengthen the working hours. ● Sismondi was of the view that the benefits accruing from farming should go to the peasants alone. ● Sismondi’s aim was to lay down the abuses of the capitalist system in actual life and to demonstrate the necessity of state intervention. The 17 Sustainable Development Goals (SDGs) GOAL 1: No Poverty GOAL 2: Zero Hunger GOAL 3: Good Health and Well-being GOAL 4: Quality Education GOAL 5: Gender Equality GOAL 6: Clean Water and Sanitation GOAL 7: Affordable and Clean Energy GOAL 8: Decent Work and Economic Growth GOAL 9: Industry, Innovation and Infrastructure GOAL 10: Reduced Inequality GOAL 11: Sustainable Cities and Communities GOAL 12: Responsible Consumption and Production GOAL 13: Climate Action GOAL 14: Life Below Water GOAL 15: Life on Land GOAL 16: Peace and Justice Strong Institutions GOAL 17: Partnerships to achieve the Goal Ambisyon Natin 2040 AmBisyon Natin 2040 represents the collective long-term vision and aspirations of the Filipino people for themselves and for the country in the next 25 years. It describes the

kind of life that people want to live, and how the country will be by 2040. As such, it is an anchor for development planning across at least four administrations. AmBisyon Natin 2040 is a picture of the future, a set of life goals and goals for the country. It is different from a plan, which defines the strategies to achieve the goals. It is like a destination that answers the question “Where do we want to be?”. A plan describes the way to get to the destination; AmBisyon Natin 2040 is the vision that guides the future and is the anchor of the country’s plans. AmBisyon Natin 2040 is the result of a long-term visioning process that began in 2015. More than 300 citizens participated in focus group discussions and close to 10,000 answered the national survey. Technical studies were prepared to identify strategic options for realizing the vision articulated by citizens. The exercise benefitted from the guidance of an Advisory Committee composed of government, private sector, academe, and civil society. 3 main pillars: 1. The Malasakit pillar is about enhancing the social fabric. The strategies aim to build the foundations for a high-trust society by ensuring a clean, efficient, and people-centered governance; guaranteeing swift and fair administration of justice; and increasing awareness of the different cultures and values across Philippine society. 2. The Pagbabago pillar is about effecting inequality-reducing transformation. It consists of strategies to expand economic opportunities, accelerate human capital development, reduce vulnerability, and build safe and secure communities. 3. The Patuloy na Pag-unlad pillar is about increasing potential growth. It consists of strategies to enhance the factors necessary to accelerate and sustain growth and development through 2040. It is about promoting science, technology, and innovation. It also covers strategies to reap the demographic dividend....