Lecture 8 0422

Lecture 8 0422 - Lecture 8 WC f ter implementing policies...

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After implementing policies of WC Lecture 8 – Big Ideas in Development: The Evolution of Theory and Policy 4/22/10 Business Today: The Evolution of Big Ideas in Development Economics Sections: o Next week: Deeper Look at Institutions o How sections can affect your grade – upside risk Next Tuesday: o Guest lecture by Elizabeth Pienar o Community-based development and wildlife conversation in Botswana (reading TBA) o After-lecture discussion about grad school in economics for those who are interested Next Thursday: o Inequality: Measurement and Relationships with Growth o PRL Chapter 6 (189-206) o Hand out problem set 2 Tuesday (5/4): Poverty: Definitions and Measurement o PRL Chapter 6 (206-236) Thursday (5/6): Wrap up of Poverty and Inequality o Problem Set 2 Due Tuesday (5/11): MIDTERM Evolution Based on Ch. 5 PRL and Lindauer and Pritchett article What Going on in 1962? Best album of the year? I Left My Heart in San Francisco (Tony Bennett) Winner of World Series? NY Yankees def SF Giants (4-3) Best movie of the year? Lawrence of Arabia What are the BIG (economic) facts of your lifetime (1920-1962)? Great Depression Macroeconomic instability – wild shifts of cycles in income per capital, unemployment Bank failures, stock market crashes Persistent unemployment War induced state management of investment (lots of govt planning) Ascendancy of Soviet Union – central planning Focus on national economies, relatively small role of international trade o Import substitution industrialization in Latin America o Trade was cut off in large groups (esp. cotton b/c used to make uniforms for US soldiers)
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From Big Facts to Big Ideas Governments are driving force behind economic growth Capital accumulation drives growth Trade is not crucial o Trade considered risky b/c international markets were volatile (possible war could stop trade) Foreign capital viewed as suspicious Dominant Economic Theory in 1962 Who is the most influential economist in 1962? o John Maynard Keynes (even though he died in 1946) Keynsianism o The Economic Consequences of the Peace (1920) o The General Theory of Employment, Interest and Money (1936) Economies can find themselves in downward spirals in which low investments => low unemployment => lower expectations => even lower investments Left on its own, free market in certain times and circumstances can fail and meet a poverty trap Says must spend, run a deficit Running a budget deficit was seen as revolutionary idea at the time Faced lots of resistance until FDR (the late 30s) o FDR, 1939 Endorses Keynsianism Says govt must increase purchasing power within people Lasting Influence of Keynes Dies In 1946 Employment Act (U.S.) of 1946 o “the responsibility of Federal Govt … to promote maximum employment, production, and purchasing power”
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Lecture 8 0422 - Lecture 8 WC f ter implementing policies...

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