PE 101, "Modern" Political Economy, Final Exam

At the final review class, the most interesting question asked me was:

What is the difference between Joseph Stiglitz's Dani Rodrik's approaches to economic development policy and the proper structuring of economic institutions?

D---ed if I know the answer to that. Maybe one of them does.

Section reviews:

• Peacock/Durham W 1:30-4 Barrows 20
• Chaubey W 11-1 Wheeler 100

Final exam: S 5-8 2060 VLSB

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At the final exam we will give you three of the essay questions below--and ask you to write on two of them. That will be two-thirds of the three-hour exam. The remaining one-third of the exam will be eight short answers, no choice.

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PE 101 FINAL EXAM ESSAY QUESTIONS:

1. Consider all the thinkers we have read who have written about the relationship between political economy and war (i.e., Schumpeter, Hobson, Angell--but also Keynes--at the start of the course--and also people like Barber and Stern near the end). Whose analyses of the roots and functions of war and imperialism do you think are likely to be closest to being true in the twenty-first century? Why? Whose analyses do you think are most closely shaped by and bound to the historical context in which they lived, and thus are not likely to be accurate descriptions of the future?

2. In what ways are thinkers like Milton Friedman (in Capitalism and Freedom) and thinkers like James Scott (in Seeing Like a State) close intellectual allies? In what ways are they mortal intellectual enemies? How have the pieces of twentieth century history that they have lived through and focus on led them to their respective conclusions?

3. What are the most notable differences between John Maynard Keynes's and Karl Polanyi's respective analyses of the problems of Europe between the world wars? What were the problems of Europe between the world wars?

4. One way to understand almost all of the thinkers read in this course is that they are all trying in various ways to escape from the box history placed us in when history turned out not to follow the "pre-WWI classical liberal" path of steadily increasing prosperity, democratization, globalization, and peace. Take at least six of the thinkers read in this course and put them in their proper place in this perspective: What things in twentieth-century history made them reject or try to fix classical liberalism? How did they think that humanity should get out of the traps and problems that history was presenting?

5. James Scott argues in Seeing Like a State that attempts at state-led development is likely to lead to a disaster. Others we have read--for example, Milton Friedman--agree. James Fallows believes that state led development in East Asia has been a smashing success. Others we have read--for example, Joseph Stiglitz--are similarly optimistic about the positive role that the government can play in economic development? How would you reconcile these two points of view? What aspects of twentieth century history is each of these two perspectives keying off of?

6. Two of the people who we read--Milovan Djilas and George Orwell--make no pretense of being social scientists. Milovan Djilas is a soldier, a politician, and an apparatchik. George Orwell is a literary intellectual and a moralist. What--if anything--makes their excursions into political economy more penetrating and illuminating than the works of those who are social scientists by profession? Or was assigning them in this course simply a mistake?

7. A large number of the thinkers we have read are explicitly concerned not just with what is but with what ought to be--not just with the technocratic "what works" but with the moral questions of "what kind of people we are" and "who are we responsible toward." Consider John Maynard Keynes, Karl Polanyi, Milton Friedman, and Joe Stiglitz. How are each of their arguments and points of view "moral" rather than "technocratic"? Does the moral element strengthen or weaken the cases they make, in your opinion?

8. One way to understand Karl Polanyi's argument in his The Great Transformation is that the market system is efficient but not equitable: it produces enormous wealth, but does not treat people "fairly." What other thinkers that we have read in this course either make or reject that part of Polanyi's argument? What pieces of twentieth-century history that they saw led them to their positions?

Comments

[Chip Poirot]

Assuming comments are wanted or welcome from the peanut gallery so to speak, I would reject the question. I don't think you can properly put Polanyi into the framework of "equity" vs. "efficiency." This is a framework Polanyi rejects.

One, he rejects this framework because in so far as he would talk about efficiency at all, it would be dynamic efficiency or "improvement". What you seem to term equity is "habitation" for Polanyi.

Polanyi's tradeoff between improvement vs. habitation doesn't quite fit into "equity" vs. "efficiency." There isn't any reason to expect "habitation" to be particularly equitable. In fact, since habitation might in some cases mean preserving traditional ways of social interaction, habitation might be dramatically unequal, but it would be workable and provide some sense of social security for all. Improvement might in fact bring about more equity-especially as it breaks down historical privilege but it also increases security.

So, to sum up, I think this is a rather straight jacketed way to read and interpret Polanyi.

[dsquared]

A lot of the answer to your student's question depends on how seriously we are meant to take Chapter 2 of "One Economics, Many Recipes". In this chapter, the Rodrik approach to growth diagnostics and second best economics is described in neoclassical terms as:

1) make a model of the economy with all its distortions
2) estimate the effect of all those distortions in terms of a wedge between private and social costs
3) estimate the cost of each of these wedges in social welfare terms
4) start on the distortion which has the largest wedge first.
5) once that's done, remake your model and start again with 1)

My personal belief is that this neoclassical model can't be operationalised and therefore Chapter 2 of OEMR needs to be taken rhetorically, as just a piece of persuasive writing aimed at convincing neoclassical economists to pay attention to the rest of the book, in which a more or less completely institutional approach is taken and a lot more leeway is given for policy actions which really don't fit into this framework (particularly industrial policy which is really difficult to characterise as "removing a distortion").

So if you take my view of the status of Ch2, then there isn't much gap between Stiglitz' view and Rodrik's, because as I understand him, Stiglitz also believes that (because of information asymmetries etc), neoclassical modelling is more or less useless for development policy. But if you take Ch2 seriously, there's a difference. I think there's textual support for both views and Rodrik's blog regularly chucks up posts which (disappointingly as far as I'm concerned) would support a neoclassical reading of OEMR.

The other big difference, of course (and I'm reminded that I wrote a whole post on this and never put it up so I ought to do that) is that Rodrik really doesn't emphasise the current account constraint and the role of external debt to anything like the extent which Stiglitz does.

(I was saying this in the CT book seminar but I probably didn't express myself very well and as a result didn't get much of an answer. I got a little bit better in discussion at the NotSneaky blog (http://notsneaky.blogspot.com/2007/11/dani-rodrik-is-liar.html and http://notsneaky.blogspot.com/2007/11/one-economics-many-recipes-seminar-at.html but still not wholly satisfied)

[wood turtle]

Re: Joseph Stiglitz and Dani Rodrik

I don't think either one believes in economic development policy or economic institutions.