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Introduction to Political Economy: Duke Course

Introduction to Political Economy: Duke Course

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Lecture 2: Exchange, Specialization, and Institutions

COURSE OVERVIEW:Introduction to Political Economy is a self-contained and nontechnical overview of the intellectual history of political economy, the logic of microeconomics, and the definitions used in macroeconomics. It introduces the notion of a political economy, emphasizing the moral and ethical problems that markets solve, and fail to solve.LECTURE OVERVIEW:1. Human beings are self-interested, but they are also intensely moral beings. Our moral sense evolved in a settingwhere trade and exchange were limited, however. As a result some of our moral reactions to markets may be atavistic, like the hips of whales.2. Another way of thinking of this is that we have "lifeboats minds" but live in a "Walmart world." The actual function ofprice is explained. Munger argues that we can "never run out of anything," because if we start to run out the price goesup, and then three things happen: (a) consumers buy less; (b) producers make more; and (c) entrepreneurs invent substitutes.3. Still, people object to these important functions of prices. Examples are given from the POW camp article by Radford, and in a remote area of Germany and "price-gouging" after hurricanes.4. What's important to remember is that there are always two considerations in dealing with market processes: a. Moral outrage/strong negative affect at being taken advantage of in the "lifeboat"b. Expectation of material benefit from consummating exchange of money for needed products

55mins

10 Aug 2016

Rank #1

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Lecture 8: Money and Banks (Guest Lecture: Prof. Richard Salsman)

COURSE OVERVIEW:Introduction to Political Economy is a self-contained and nontechnical overview of the intellectual history of political economy, the logic of microeconomics, and the definitions used in macroeconomics. It introduces the notion of a political economy, emphasizing the moral and ethical problems that markets solve, and fail to solve. This lecture is taught by Richard Salsman, Ph.D..LECTURE OVERVIEW: 1. Moneyfunctions & formsmetal, paper, plastic and bitsmarket-based versus fiat-based2. Banking financial intermediation types; depository, commercial, investment free banking versus central banking3. Public Finance funding of government spending taxing, borrowing and money-creation deficits, debts and unfunded entitlements fiscal rectitude versus fiscal profligacy

1hr 9mins

10 Aug 2016

Rank #2

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Lecture 12: Basics of Political Choice I — Preferences

COURSE OVERVIEW:Introduction to Political Economy is a self-contained and nontechnical overview of the intellectual history of political economy, the logic of microeconomics, and the definitions used in macroeconomics. It introduces the notion of a political economy, emphasizing the moral and ethical problems that markets solve, and fail to solve.LECTURE OVERVIEW: 1. Problem with voting: May not produce a coherent result, if people disagree2. In the case of the Corps of Discovery, turns out there may have been a "cycle," the equivalent of "Rock/Paper/Scissors."3. Thus, there are two separate problems with political institutions:No obvious solution, or group choice. So outcome can be manipulated with agenda control. In fact, control of the agenda is tantamount to dictatorship. More dangerous, in a way, because trappings of “democracy.”Perhaps worse, the fact that there is no obvious choice raises a fundamental problem of social coherence: a majority is opposed to every alternative. You think it’s a problem of epistemology, but it’s a problem of ontology.4. The result is that control of agendas may be tantamount to a kind of dictatorship. The rules matter more than you expect!5. But voters also have power, because they can vote "strategically," misrepresenting their preferences in early rounds of voting. The problem is that this debases the informational grounds for using voting as a "discovery process" in the first place.6. Condorcet's Paradox:Necessary conditionsThree or more choicesThree or more agentsDisagreement of a certain kindIn this case, neither persuasion nor compromise possible7. Definition of Condorcet's Paradox: “If there are at least three choices and at least three choosers who disagree, then pairwise majority rule decision processes can imply intransitive group choices, even if all the individual preference orders are transitive."8. This likely caused the dictatorship in France after 1799, and may explain the return to dictatorship in Russia and Egypt in the 21st century.

57mins

10 Aug 2016

Rank #3

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Lecture 3: Property

COURSE OVERVIEW:Introduction to Political Economy is a self-contained and nontechnical overview of the intellectual history of political economy, the logic of microeconomics, and the definitions used in macroeconomics. It introduces the notion of a political economy, emphasizing the moral and ethical problems that markets solve, and fail to solve.LECTURE OVERVIEW:1. Is economics a science?2. Do institutions evolve (coyotes), or emerge from conscious choice (chihuahuas)? Another example is also given, comparing Jewish dietary and food preparation rules with "modern"food handling rules based on a theory of germ pathology. They are surprisingly similar, showingthat there are at least two paths to development of rules.3. The briefest statement of the best argument for capitalism is NOT greed, it's not self-interestIt's the relation between property, voluntary exchange, and price. These have a connected set of consequentialist and natural rights implications. No way to evaluate them separately, because they can't really be disconnected.4. The political theories of Hobbes, Locke, and Rousseau are discussed, and the implications for the morality and importance of property described.5. Does your dog own your house?6. Two court cases are discussed: (a) Hinman v. Pacific Air (1936) and (b) Jacques v. Steenberg Homes (1997). The implications for our understanding, and the social status, of property, is discussed.

1hr 2mins

10 Aug 2016

Rank #4

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Lecture 5: Entrepreneurship I

COURSE OVERVIEW:Introduction to Political Economy is a self-contained and nontechnical overview of the intellectual history of political economy, the logic of microeconomics, and the definitions used in macroeconomics. It introduces the notion of a political economy, emphasizing the moral and ethical problems that markets solve, and fail to solve.LECTURE OVERVIEW:1. Profits are defined as the revenue left over from sales after all the inputs (including the salary of the entrepreneur) are paid.2. What is an entrepreneur? “A person who organizes/operates a business or businesses, taking on financial risk to do so.” 3. This is different from a "political entrepreneur," who uses government funds in business, which greatly reduces risk to the “entrepreneur,” but depends on taking money from taxpayers rather than customers. This is also called "rent-seeking."4. The key difference is that entrepreneurs hire engineers, to sell stuff to consumers, while rent-seekers hire lobbyists, to get “profit” from the government.5. The story of the Mancgere is told, from a Saxon psalter in about 1050 C.E. The Mancgere tries to justify profits as a return to risk, and trading as a benefit to consumers.6. The story of the Verger is told, using a Somerset Maugham short story character.7. Examples of rent-seeking and true entrepreneurship are recounted from Burton Fulsom's book "The Myth of the Robber Barons."8. Political choice (the median voter theorem) and economic choice (profits, at the margin) are distinguished. It is likely that it is better to use one sometimes, and the other at other times. Neither is best overall.

38mins

10 Aug 2016

Rank #5

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Lecture 7: Prices, Just Prices, and Opportunity Cost

COURSE OVERVIEW:Introduction to Political Economy is a self-contained and nontechnical overview of the intellectual history of political economy, the logic of microeconomics, and the definitions used in macroeconomics. It introduces the notion of a political economy, emphasizing the moral and ethical problems that markets solve, and fail to solve.LECTURE OVERVIEW:1. Division of labor is the central concept in all of understanding social institutions. Statesand markets focus division of labor in different ways, and both are necessary.2. Both markets and states fail when they encourage rent-seeking.3. Opportunity cost: The cost of doing something is the cost of NOT doing other things. Example:the concert tickets4. Price: When markets work well (and they don't always) price approximates opportunity cost. That is important because it gives people all over the world accurate signals about how OTHER people valueresources.5. Video: Al Trewis and Moe Cashferme decide whether to grow corn or soy.6. Sock City: Datang, China makes most of the socks in the world, because of division of labor and the pricesystem. Very efficient, but harmful to the workers who used to make socks, but now lost their jobs.7. The whole world is constantly "losing" jobs to productivity increases. Great benefit to consumers.8. An extended example: Recycling. Recycling is expensive. Price system alone would say recycling is a badidea. But prices here do NOT approximate opportunity cost. May be room for effective state action.

58mins

10 Aug 2016

Rank #6

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Lecture 6: Entrepreneurship II

COURSE OVERVIEW:Introduction to Political Economy is a self-contained and nontechnical overview of the intellectual history of political economy, the logic of microeconomics, and the definitions used in macroeconomics. It introduces the notion of a political economy, emphasizing the moral and ethical problems that markets solve, and fail to solve.LECTURE OVERVIEW:1. The argument for capitalism and entrepreneurship is not greed, but benefits to consumers. Markets rely on a system called "consumer sovereignty."2. The story of Soichiro Honda, and his struggles with bureaucracy. Innovation requires many people working on different things, and many failures.3. Definitions: Opportunity Cost, Rents, Profits, and Rent-Seeking4. The distinction between profit-seeking and rent-seeking is complicated, but it is socially important. Government has to be careful to restrict rent-seeking opportunities, becauseprivate markets can't tell the difference!5. But the incentives of the state are wrong, and the state often fails. Many states actually specialize in rent-extraction. Examples--"mud farmers" and castles along the Rhine River in Germany, are considered.6. The key problem: Rent seeking causes a loss of consumer surplus from exchanges that do not take place. Unseen, hard to measure. Foregone improvements in growth, prosperity and use of goods. There is also the dissipation of resources in war over right to charge tolls, so that spawns competition over rights to control access to "overfishing" the resource. 7. A summary: Exchange creates value, New products must pass profit test. But accounting profits are both rents and profits. Problem: rent-seeking destroys value in pursuit of transfers, which are at best neutral. Creating rents is "profitable" for authority that can extract transfers in exchange.

56mins

10 Aug 2016

Rank #7

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Lecture 11: The Paradigm of Public Choice

COURSE OVERVIEW:Introduction to Political Economy is a self-contained and nontechnical overview of the intellectual history of political economy, the logic of microeconomics, and the definitions used in macroeconomics. It introduces the notion of a political economy, emphasizing the moral and ethical problems that markets solve, and fail to solve.LECTURE OVERVIEW: 1. The example of Lewis and Clark, and the Corps of Discovery: sometimes groups have to choose, AS A GROUP. They all consent to the rules, and are thus bound by the outcome, even if they disagree with it. Market institutions cannot help here.2. The definition of "politics" is the negotiation of a constituted group, with rules of decision, and also entry and exit. People choosing in groups this way are engaging in "politics."3. The example of Odysseus, bound to the mast. Can people commit now to be bound by their choices?4. The "Prisoner's Dilemma": We want everyone else to be bound by rules, but we know we want to cheat. So we voluntarily agree to be bound to be coerced, provided everyone else makes the same agreement.

52mins

10 Aug 2016

Rank #8

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Lecture 9: Bitcoin, Cryptocurrency, and the Future of Money

COURSE OVERVIEW:Introduction to Political Economy is a self-contained and nontechnical overview of the intellectual history of political economy, the logic of microeconomics, and the definitions used in macroeconomics. It introduces the notion of a political economy, emphasizing the moral and ethical problems that markets solve, and fail to solve.LECTURE OVERVIEW: 1. Venezuela as an example: a "shortage" of money?2. Bitcoin: Is a global crypto-currency, has been around since January of 2009. It is not issued by any entity, but rather is peer-to-peer / decentralized. It trades over the internet, or “feature phones.” The protocol is open source. The participants are owners, buyers, and "miners," or people who transmit and check transactions.3. The maximum number of Bitcoins will be about 21 million. A bitcoin is a unit of measurement, but the “unit” depends on solely on how people value it in transactions. No physical existence.4. Five essential steps in a Bitcoin transaction:Step 1: owner of Bitcoins signs in, using public key (or Bitcoin Address) a bit like username) and a private key (a bit like password).Step 2: owner of Bitcoins sends X Bitcoins (highly divisible) to another Bitcoin Address. Step 3: This information is then broadcast by the software on the sender’s phone or PC, and received by all the (active) nodes in the networkStep 4: All the active nodes add the (pending) transaction to the relevant (current) block. A block is like a ledger entry, divided into 10 minute intervals. All the transactions in one 10 minute interval are in the same block (blocks are disjoint: 10:10 to 10:20, 10:20 to 10:30, and so on…)Step 5: The block is run through a hash function by miners. This is a unique set of characters that contain all the information in the entire block, though knowing the hash won’t let you reproduce the block. Blocks are linked to previous blocks, creating a blockchain. The value of every account is evident on the blockchain.

59mins

10 Aug 2016

Rank #9

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Lecture 10: The Problem of Voluntary Exchange & the Origins of Markets

COURSE OVERVIEW:Introduction to Political Economy is a self-contained and nontechnical overview of the intellectual history of political economy, the logic of microeconomics, and the definitions used in macroeconomics. It introduces the notion of a political economy, emphasizing the moral and ethical problems that markets solve, and fail to solve.LECTURE OVERVIEW: 1. A core argument for markets, then, is that voluntary exchange makes both parties better off. The public policy implication is that the state should take only minimal actions to regulate voluntary exchange, and those actions should foster such exchanges by reducing transactions costs.2. Greek philosophy and market connections: Xenophon and Aristotle3. Six conditions for an exchange to be "eunvoluntary"Conventional ownership by both partiesConventional capacity to transfer and assign this ownership to the other partyThe absence of post-exchange regret, for both parties, in the sense that both receive value at least as great as was anticipated at the time of the agreement to exchangeThe absence of uncompensated externalitiesNeither party is coerced, in the sense of being forced to exchange by threatNeither party is coerced in the alternative sense of being harmed by failing to exchange.4. Bottom line: Just because an exchange is not coerced by human Agency, it does not follow that it is “Voluntary”. And if the exchange is not voluntary, then we have to question the whole set of conclusions about markets being ethical and beneficial. Essentially comes down to many buyers and many sellers. But that’s interesting, because it is exactly the definition of “Perfect competition”. So, assumption of perfect Competition finesses concerns about ethics of Markets. In short, there Is a Reason why economists and philosophers tend to use different examples!

53mins

10 Aug 2016

Rank #10