Economics, globalisation and trade with Hannah Tyndall

4 basic concepts of economics:

1. Poverty trap – it is fundamental to understanding any form of

development economics debate so one of the basic principles in economics is
that you need to invest before you can get money so if I want to become a
farmer I need to be able to buy seeds before I can grow crops to get that seed
so all economic growth involves a time lag.

A poverty trap is where you do not have enough money in order to invest whether
that be in human capital or physical capital so there are lots of examples to this eg -
people working in farms as opposed to going to schools because they need the
subsistence agriculture to keep them alive, people living in rural areas where there
are only jobs during harvest season but they don't have enough money for the bus
ticket to take them to an area where there would be more jobs so there are lots of
examples of where people don't have enough money.This can be solved by aid just
giving them money, by foreign capital other people doing the investment, by
saving enough over long periods of time so you have enough investment so all
sorts of different ways look to be microfinance is another good example where you
just borrow the money in order to pay it back afterwards. So effectively core of all
development debates are trying to escape poverty.

Second is opportunity costs which is just basically the other this is summed up in
the phrase that there's no such thing as a free lunch so it's the idea that you
can get every time you do something you've used an alternative It's the idea
that every time someone does a job they are unable to do another job so the idea
is that you can never get something you free if you are spending money on
a radiator you cannot also be spending money on hot chocolate so there's always a
loss of other alternatives so that's a really good idea especially if people had a
liberal argument to that why don't we just give people all the things that they want
because by giving someone something you're necessarily denying them an
opportunity to do something else so there's an opportunity cost to that.

third one is Pareto efficiency so Pareto efficiency is a goal the economists strive to
achieve an allocation of resources where they can make everyone better off
without making anyone else worse off so specifically in the context of things like
redistribution if I were to give everyone in this room a bar of chocolate I would be
making everyone else better off however if I were to take 20 bars of chocolate
from Olivia and give one to everyone in this room I was then actually that would
not be Pareto efficient because someone would be worse off in the process of
making everyone else better off so this is something that we talk about we talk
about in trade and it's going to come up a lot when we talk about trading.

Last thing is the difference between micro and macro because this sometimes
confuses people quite a lot so micro markets are small-scale markets so the
housing market the labor market the market for university degrees and those are all
things that have an individual price mechanism and can be modeled with supply
and demand there is supply of houses and demand for houses and broadly the
supply and demand for houses is not too dissimilar to the supply of fish and the
demand for fish or even the supply of university degrees and the demand the
university degrees so that's one set up The second set has to do with the way the
whole economy runs so they care about unemployment they care about inflation
they care about GDP they care about broad understandings of how people are
doing which is obviously very different to talking about specific markets so you
can't describe the economy by using demand and supply because you're not
talking about specific Goods and that means that you need to look at more holistic
measures of the economy and I think we're very clear in debates about whether this
is the microeconomics debate or a macroeconomics debate is sometimes very
useful. However the labor market can be explained with the demand supply but
also has implications on unemployment so it's not necessarily a clear distinction
but is very good one to have in mind

How to go about economics debates

Think of economics debates in the same way you think of any other debates, dispel
the mystique that economic debates are different or somehow harder
Secondly the second part of the talk I want to talk about things people say that they
necessarily shouldn't say or things that people find really hard to argue for and try
and I'll explain why how you can use economic reasoning to try and argue for
some popular positions so what is debating about I think one of the ways you can
conceptualize debating is that it's about trade off so obviously not all notions are
like but normally you'd expect a motion to have some benefits attached to it and
also some harms attached to it and your role as a team is not only to argue why
those benefits and harms might not exist but you also have to argue while those
things are important and that involves trade-offs between two good things so I
think of you conceptualize debating with the idea of trading off opportunities
so economics is about a lot about is distributing goods right so that allocating
resources eg - if I have a hundred chocolate bars in this room how many chocolate
bars do I give to everyone so I need to distribute those chocolate bars over people
but I also need to distribute these chocolate bars over time and I also need to care
about outcomes like everyone getting fat so I also need those of some social
priorities to do with what how I want to distribute those chocolate bars and I think
that economics is about looking at different ways of distributing resources and that
are trade-offs within economics.

Some common tradeoffs in economics –

eg- do we search for GPD or search for happy-nomics or people being happier
which was a big thing that David Cameron tried to push in 2010.

3 Categories of Tradeoffs:- ( all these tradeoffs are considered against growth)

Stability
I think in debates about things like FDI often FDI can make a country very rich but
if for example there's a political shock it can flood out again so it's very unstable
investment I'm talking about why that might or might not be a good thing which
also a lot of the debates about trade and protectionist it's also about how much job
stability we should give people

Distribution
Economics deals with redistribution and how to cut the pie

Values
There are tradeoffs between values and growth , eg – more growth may come at
the cost of environment protection
Debates about distribution
There are two different types of debates about distribution the first is about the jobs
so these are the debates about whether we should pay CEO so much money who
only have managerial skills while someone with more advanced skills gets paid
less. This sort of debates are also around class inequality i.e between the middle
class and the rich class.
the second type of inequality is about regional equality which we see in the form of
an increasing trend towards mega cities

Why inequality is bad – but not moralistic reasons

1.Social instability – can lead to marginalization and deeper division, can lead to
gentrification and can affect the social cohesiveness in the society
2. Crime in society can increase – propensity to steal increases as the gulf between
the rich and the poor increases –again causes instability in the country - the more
unequal people's lives are the more propensity there are to steal things
3..people's expectations are relative how people perceive themselves and how
people feel depends on the amount of wealth other people have around them. So
inequality also affects happiness of people
4. Democratic distortion – democracy is distorted if you have people who are
richer and own media houses and have increasing political powers in society.
5.Type of economy produced- So if there are inequalities then the state will
produce more goods for the rich as goods are produced for those who have the
paying capacity. Thus goods that are produced for the rich may not be beneficial to
the poor or middle income people.
6. restricts social mobility – if inequalities are allowed to exist or to exacerbate
then this will defeat the very purpose of getting out of the poverty trap. The
chances of these people emerging out of poverty will reduce if no efforts are made
to reduce inequality (refer to poverty trap point)
10.Bad economically – extra pound to the ceo has substantially lesser utility as
compared to the other poor groups in the economy.

geographic inequality or regional inequality

why does there exist this kind of inequality
1. regional inequality mimic already existing ethnic and social inequalities.
2. Due to political incentive- there are political incentives to further growth in
certain areas – like in mega cities that are a hub for the rich or due to electoral or
vote bank gains
3. This inequality might lead to secessionist movements – eg – Spain
4.One of the reasons that people don’t move from backward regions to more
developed regions can be due to community and ethnic ties with that place.

Economics history – why did the world grow more unequal after 1980s
1. Technology – the effect of technology is negative in some sectors and positive
in other sectors, so for eg – for researchers and managerial jobs the productivity
and efficiency was enhanced with better technology and thus their wages also
increased however in retail sectors like cloth production better technology actually
robbed people their jobs and reduced their salaries which in turn led to increased
poverty and unemployment.
2. Globalisation and trade - this has unequal effects, some countries have
benefitted. Free markets have caused harm to various countries and communities
and this creates more inequality.
3. Globalisation and migration – certain jobs can be offshored to cheaper markets
and labour, because there is increased competition the prices become competitive
and cheaper.
4. Financial markets – since the 1980s and there was a lot of deregulation and if
you invest in the stock market you're probably going to get a larger amount of
growth and what income then if you have a job and you wait for your wages to
rise. Thus a few rich people are able to increase their individual income by
investing more in the stock market.

Stability
Economics not only aims to increase wealth but also it aims to increase stability
1.Regulation – in an economy there is a tradeoff between safety and growth. Eg- if
the govt allows the banks to lend more then it can help boost the economy however
in case of any unrest or during shocks it will be in better interest of the economy
that the banks have more money with themselves so that they can cushion the
effects of any such shocks
2. International Investment – FDI though helpful can be extremely volatile. It is
affected by political and global economics trends and is not a stable source to rely
on for economic growth.
3.Diversification – so if an economy only produces oil as it is rich in oil and it
profitable for them, it exposes itself to certain risks. Without diversification an
economy becomes vulnerable to any unforeseen shocks, so if the prices of oil
reduce or if the demand for oil declines then the economy might struggle to stay
afloat.
4. Boom and bust cycle- there are some times when government push in order to
increase GDP and that can eventually end up in the bust a good example of this is
the fact that we don't allow government to directly control interest rates because
governments would have an incentive to lower interest rates because if you lower
interest rate banks lend more money and so there's more growth in the economy
but there might also be a chance of a bust so if your banks lend too much money
and banks lend money to businesses or even households who can't repay back
that money in the long term there might be a bust.

Social outcomes of economic decision –

1. education policy – so what kind o education policy does the economy want to
focus upon. An education policy to give people the skills that the workforce needs
or an education that acts as a social instrument to give them creative space and
facilitate social mixing
2. Immigration –if more immigration is allowed then this might take job from the
people of the country
3. There is another tradeoff between labour vs leisure. So if in an economy the
longer the people work the lesser time they have for leisure. So as a society a
tradeoff has to be made between labour and leisure.
4. growth v. environment – increased production comes at the cost of increased
environmental harm such as increased green house gas emissions

Why Economic growth matters?

1.Libertarians say that growth equals to freedom – as an economy grows and
opportunities expand people have more freedom to choose which jobs they want
to do to fulfill the outcome that they desire for.
2. People in an economy have at least some materialist wants which can be
fulfilled only by money. If people have money they are able to satisfy their wants
which in turn makes them happier .