Wednesday, March 17th, 1999

Announcements: Make sure you are still reading the New York Times

Lecture notes:
I. History of International Political Economy
    A. Traditionally lead by a hegemons
        1. Hegemon- a regional or world economic and/or political military power that seeks to
                              impose the existing world order on others for the sake of its own
                              stability.
   B. Ability of economics to functions with little government involvement
        1. There must be enforceable contracts and property rights
        2. These types of laws can only be enforced by the government
   C.  The purpose of property rights is that once you give your product to the other party,
        you will still possess something.
        1. You exchange goods either for money or other goods, either way you still have
            something to replace the good you traded.
    D. The purpose of contracts is that once you have agreed with the other party to trade
        that it will continue on the agreed terms, even if the goods are not exchanged at the
        same time.
        1. An example of this is when you go to the store and buy something with a check or
            credit card. You are in giving the store an IOU saying that it will be paid in the
            future.
    E. Internationally there is no enforcer for these laws like there is domestically.
        1. Governments must work together to ensure that these laws are followed.
        2. This is why it is good to have a hegemon, because they act like an enforcer.
        3. The hegemon coordinates the different nations so that they will work together
        4. It doesn't matter how things are done, but that everyone agrees on how to do things.
    F. This type of system was used during the first several thousand years of civilization
        1. It was the only system available
        2. Became inadequate as countries became more advanced
II. 1944---Brentwood
    A.  A resort in Minnesota were a group of economists meet to determine future path of
          economics.
    B. They decided a new system was needed after W.W.II.
        1. They didn't want another World War
    C. Depression was one cause of W.W.II.
        1. The main reason was because of how countries reacted to the financial crisis
        2. Most countries reacted by using policies that caused  "beggar thy neighbor"
            a. It is when you do something mean to your neighbor and they do it back to you
        3. The first thing that most countries did was devalue their currency
            a. At this point in history, leaders had control
            b. By devaluing, imports cost more than the domestic products cheaper for the
               citizens.
           c. In the neighboring countries that trade with this country, it is cheaper for the
               citizens to buy imports, so their domestic industry is hurt.
           d. This creates a domino effect
           e. Because of this the neighboring countries have to devalue their currency, and
               then the original country must devalue its currency again.
  III. Three Institutions created to police economic
        A. International there is no money, only different currencies
        B. Money makes getting goods easier, it is medium for labor
        C. They were formed collectively for these reasons:
            1. Exchange of currencies is very important
            2. Willingness to change currencies is comparable to willingness to exchange good
                and services
            3. Ease of using currency
        D. International Monetary Fund (INF)
            1. Regulates International monetary system
                a. Alan Greenspan is in charge of US
            2. Bank for International Banks
            3. International companies/traders must know monetary (currency) exchange
                a. If it fluctuates a lot, the confidence in getting return for exchange decreases,
                    thus reducing willingness.
            4. Before World War II, the monetary unit standard was 1 sterling British pound
                a. there was a hegemon
                b. Large amount of money available
            5. After World War II, the monetary unit standard was the US dollar, because the
                British were bankrupt
                a. The US dollar is backed by gold
                b. US had 70-80% of the mined gold in the world
                c. This dollar was not the same as the dollar today
            6. Money also a store of value
                a. After a value a year it is still worth about the same as the original price
                b. The abundance of currency makes it harder to hold its value
                c. It is designed to push money out of the country
            7. INF's role is to stabilize currency
                a. Works with central World banks
                b. INF's and central banks controls supply and demand by buying the dollars
                   (currency)
            8. The "Take System"
                a. Countries determined exchanged rate
            9. INF loaned money to countries so they can control currency
            10. INF system had to be changed
                a. reason: US had to float lots of dollars in the world market
                b. money is an IOU
                c. Too many decreases value and raises concern about the stability of the dollar
                d. In 50s and 60s, central banks started to cash  in dollars for gold
                e. In 1971, Nixon devalues US dollar and disassociates dollar and gold
                f. Now have floating exchange rate
        E. International Bank for Reconstruction and Development (World Bank)
            1. Europe was destroyed, and US knew that the only way it could advance was if
                there was a market for them to sell their goods.
            2. Goal: to send money to Europe
                a. Marshall plan was a program developed to filter money into Europe
                b. World Bank never accomplished its goals in Europe
            3. Now is used to help developing countries
                a. Uses its power for macroeconomics changes in these countries
       F. General Agreement of Tariffs and Trade (GATT)
           1. Result of "Beggar thy neighbor"
           2. Systems of rules countries agree to in order to take advantage of the benefits
                brought about due to these rules.
                -Example: Must offer all countries you trade with the same rate of trade
           3. All countries can compete equally
           4. Used to lower tariffs
           5. Each round lowers tariffs, the last round of decisions were held in Uruguay
           6. Countries must compromise because they want to have high tariffs in order to
                keep domestic industries growing.
           7. Non tariffs barriers are used to get around tariffs --- quotas, environmental
              regulations
               a.they have the same effect