Monday, March 15th, 1999

Announcements: Second Writing Assignment (See end of notes) assigned
Lecture notes:
I. International Political Economics
    A. Very important in today's global arena
        1. Economics is the focus of leaders, not conflict
            a. Some see economics as a form of conflict
        2. Economics is an exchange
            a. Voluntary interaction
            b. Participants many not be happy that they have to pay, but they rather have the
                good/service than the money.
II. Comparative Advantage
    A. Trade and why it is beneficial
        1. Assumptions: Trade is voluntary and enforceable property rights
    B. Economics is the size of the pie, while politics is how much of the pie you get.
        1. Fight over pie is now secondary
        2. Major goal is to create resources
III. Example of comparative advantage
    A. Two countries in this imaginary world ----- Japan and the United States
    B. They can each only produce only two goods ----- airplanes and automobiles

    C. In Graph 1, Japan has the absolute advantage in this trade scenario.
        1. The ability to produce something cheaper, better, and more goods then its
            competitors.
    D. The United States has the comparative advantage, which means that even though
        they aren't the best at producing something, they can do it comparatively better
        than its competitors.
    E. In this scenario, you must assume that the world is in a state of Autarchy, which
        means that there is no trade.
    F. Each country has the same amount of resources ( 100 units) to make products.

       G. U.S. doesn't like not having cars, so it is willing to give up its airplanes in order
            to get automobiles.
IV. Exchange of Goods
    A. Conditions under which exchange is possible can be determined by looking at the
        first table.
    B. People are willing to trade when you have something that they want and you can
        give it to them for a lower price then they can make it themselves.
    C. Therefore Japan is willing to trade 3 autos for 1 plane.
          1. US would be willing to trade 1 plane for 2 autos

    D. Just because some has absolute advantage doesn't matter means that other
        person shouldn't be focused on what they do best.
    E. Allowing someone to specialize in something comparatively better than someone
        else, even if they aren't the best, it is an advantage to everyone.
    F. Perot and Buchannan is wrong --- no one lost jobs due to NAFTA
        1. Reason: Everyone has resources that must be used, so everyone has a
                            comparative advantage that let's us use the resources.
V. Power in Economics
    A. It is the source of economics
    B. There is no law governing who get the surplus created by free trade
    C. Conflict is a part of free trade, but free trade is not just conflict
    D. Bargaining is used by both parties so that both sides can get what they want.
        1. Sometimes results in conflict.
VI. Free Trade
    A. Higher cost labor is not wasteful, as long as you take part in bargaining.
        1. Someone else will use up all the cheap labor, and the cost of that labor will
            eventually rise.
        2. Conflict is in the story, not over whether the exchange will occur, but who will
            get advantage.
    B. Comparative Advantage
        1. Why it is better not to be isolated.
        2. Can link resources and domain
        3. Political advantage to opposing free trade
    C. All theories are wrong to some extent
    D. Milton Freedman said that NAFTA took a 1000 pages to say free trade, so it
         really isn't free trade.
    E. Units aren't correct when describing what is needed to produce a product.
        1. Not just raw materials, but also man power
    F. Group of economists added things to model of free trade
        1. Not units, there are different factors of production
        2. Factors include capital (tools, money), land ( agriculture), labor (worker),
            human capital ( improvement of labor)
VII. Labor
    A. If you have lots of one -- you can possibly produce more than someone else
    B. Third World countries can't compete in technology market, but have a
        comparative advantage when it comes to labor.
    C. Labor factor found many in developing countries
        1. Persian rugs, clothes
    D. Capital factor found in developed countries
        1. machinery, technical industry
VIII.  Stolper and Samuelson
    A. They believe that the people who control the factors control how these factors are
         used in trade.
    B. Those with capital factor want free trade
    C. Those with labor factor don't want free trade
        1. Many labor unions in US and third world countries oppose free trade