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Contemporary theories of Political Economy

Contemporary Theories of Political Economy
Location: TuTh 2-3:30

Professor Crawford
University of California at Berkeley


Study Questions



Course Requirements

Your Instructor


statement on Plagiarism

Study Questions

Classical Economic Liberalism

which one, Hayek or Friedman, appeals to you most and why?
•Why does Hayek think that planning makes the future more insecure than non-planning?

•Why is Obama called by some a “socialist” regarding his Public Health Care Reform? Look for passages in the readings that might justify this description.

  • Do new technologies that link buyer and seller quickly (like Lyft, uber, etc.) prove Hayek's point about knowledge?


Questions for Discussion: Freedom and Rationality

1) What does “Freakonomics” tell us about rationality and people’s incentives? Do you believe their argument?

2) What do the findings in both “Freakonomics” and Coase’s work tell us about the role of causation in determining economic costs and benefits?

3) Coase states that his measurement of social costs that can be used to “choose the right social arrangement” to prevent harmful effects? How objective is his measurement?

4) What does Coase’s approach to social costs mean for the role of the state in the economy?

5) How do Olson’s findings about the individual’s behavior in different group sizes affect the liberal argument about market rationality?

6) Why does Olson find it necessary to distinguish between “rationality” and “self-interest”? What does this distinction mean for the liberal argument?

7) What are the biggest differences between rationality, social norms, and emotions?


10.  Why, according to Holmes' characterization of political liberalism, should Obama's opponents call him a liberal rather than a socialist?

11. Are Democracy and Freedom universal human desires or are they constructs of Western Philosophy?

12. According to the Encyclopedia Film, where does the United States stand on the "respect scale" and the "power scale?"

Questions for Discussion: Competition and Freedom

1) Why is Competition is an essential feature of markets
2) Why is that considered good?
3) Why is it rational to compete
4) Why is it more rational to compete in large groups than in small groups?
5) Why cooperation is sometimes better than competition What are the differences between political and economic liberals on this question?
6) How can you get cooperation? What are the differences between political and economic liberals on this question?

Questions for Discussion: A Modern Take on Comparative Advantage

  • Describe the theory of Comparative Advantage
  • what is the difference between absolute advantage and comparative advantage?
  • What are opportunity Costs?
  • According to the theory, how does free trade create innovation and specialization?
  • What is the Labor Theory of Value, and does it still hold today? How have modern theories of Political Economy modified this classical theory?
  • Why does Krugman think that rich countries don't have to worry that poor countries will take their jobs?
  • What's wrong with self-sufficiency?
  • Does Free Trade make the state obsolete?

Questions for discussion: The Contradiction between the Market and Society

  • What does Polanyi think of "economic progress"
  • What is Polanyi's main thesis?
  • What is his central critique of economic liberalism?
  • What was Speenhamland and why was it important? (Hint: What is the perversity thesis?)
  • Do you agree that Land, Labor, and Money are "fictitious commodities?" Defend your answer
  • What is the "Great Transformation?"
  • Is Polanyi's history correct?

Questions for discussion:Irrationality, Institutions, Markets and Democracy

1. Before 2008 many people were convinced that "irrationality disappears when it comes to important decisions about money." Does the stock market crash, then, suggest that people are irrational?  Does irrationality explain the crash? 

2. Does standard economics (economic liberalism) really suggest that we don't have cognitive limitations?  Or does it admit that we always make "rational" decisions within constraints? Is Ariely overstating his case for irrationality?

3. Ariely quotes Alan Greenspan, the former chairman of the Federal Reserve, saying that he was “shocked” that the markets did not work as anticipated, or automatically self-correct as they were supposed to. Ariely quotes him as saying that he made a mistake in assuming that the self-interest of organizations, specifically banks and others, was such that they were capable of protecting their own shareholders. 

Doesn't game theory suggest that non-cooperative decisions are often sub-optimal but we make them because we want to preserve our freedom of choice?  And doesn't the business cycle suggest that markets will always go through periods of boom and bust?  Is Greenspan really so naive?

4. Ariely writes: " When I look at the health care debate, it seems to be fueled by ideological beliefs about the importance of competition and freedom of choice on one hand, and the evilness of regulations and limits on the other."  What would Lindbloom say to him?

5. Do insights about the "optimism bias"  undermine the standard definition of rationality that Elster puts forth? 

6. How do economic liberals treat "fairness" in their models?  Does the "ultimatum game" suggest that the model is wrong?

7. How does "guilt" undermine standard notions of rationality?

8. How would rational economics respond to Ariely's critique?

9. Is Williamson trying to justify the emergence of large, monopoly corporations with his emphasis on the rationality of reducing transaction costs? 

10. Which importance do institutions have in the market?

11. How would an economic liberal react to Lindblom's statement that government is the central actor in the market?

12. Is Lindblom a liberal?

13. Why does Gourevitch reject that markets and democracy does not necessarily go hand in hand? Is this a blow to liberalism?

14. How do Lindblom and Gourevitch differ in the overall conclusions about the relationship between the state and the market?
Questions for Discussion: Political Liberalism

1. In which way does the argument that freedom of communication is more important than freedom of information access fit the idea of political liberalism?

2.  Friedman writes in the end of the chapter that we read for session 2: " The paternalistic ground for government activity is in many ways the most troublesome to a liberal; for it involves the acceptance of a principle - that some shall decide for others."  What response would the political liberal give to this?

3. Which normative considerations of political liberalism harmonize respectively with your understanding of the political goals of Democrats and Republicans?

4. Look for passages where Holmes indicates what liberalism is not: Which of these elements are part of American politics and society of today?  In what ways is the U.S. a politically liberal country and in what ways is it not politically liberal?

5.  Is Holmes saying that for democracy to thrive, there has to be a market economy?

6. How is "self-interest" different from "advantage-seeking" according to Holmes?

7. What is the "self-exemption taboo?"

8.  Did the American founding fathers want to create a weak state or a strong state?  What was their reasoning?

9. Do you think that Madison's ideas about minority support for decisions of a democratic government can explain the recent economic "bail-out" of  Wall Street, leaving out Main Street?

Questions for discussion: Fairness and Distributive Justice

  • What is plural affiliation and how is it related to "fairness?"
  • What does Sen mean when he talks about Rawls' "original position?"
  • What is global justice for Sen and how does he propose to achieve it?
  • Political Liberals all rely on the market as the most fair or just means of allocating resources in society. Assuming you are a liberal, would you rely on the market alone, would you insist on strict merit as a way to achieve gains in the market; would you insist on a "level playing field," then "merit," then let the market work; or would you rely on the principle of redistribution to achieve fairness? What is the reasoning behind your choice? Why would you reject the other choices?
  • How do "entitlements" differ from what we deserve in the theory of distributive justice?

Questions for Discussion (Equality)

  • How does Marx' concept of freedom differ from the liberal concept of freedom?
  • What is the reasoning behind this conclusion in chapter I: "In one word, [the Bourgeoisie] creates a world after its own image".
  • Why do Marx and Engels say that the "abolition of private property" sums up the ideology of communism?
  • Why is the bourgeoisie, according to the Manifesto, inherently unstable and will consequently fall?
  • Is the fall of the bourgeoisie and the following victory of the proletariat an automatic mechanism? Or does it need action to trigger the change?
  • When reading the Manifesto, why do you think there was (and is) such a strong intellectual opposition to communism in the U.S.?
  • What does the Manifesto says about communism and democracy? Do they enforce or contradict each other?
  • What does Roemer mean when he contrasts the "thin" view of markets with the "thick" view?
  • How does Roemer's characterization of the socialist's view of "equality of opportunity" differ from the liberal view of "equality of opportunity" as characterized by Holms?
  • What does Roemer mean by a "public bad?" How is it different from a "public good" and how is it related to the "free rider problem"?
  • What is Roemer's remedy for inequality and how does it differ from the theory of distributive justice?
  • What is "market socialism?"

Questions for Discussion (Community and Nation)

  • What is the communitarian's critique of liberalism?
  • How does the "general will" differ from "democracy?"
  • Is Polanyi a communitarian, a socialist, or both? Why?
  • Is a gift economy a viable system for allocating resources in society? Explain.
  • Why are digital goods "anti-rival" goods? How do they differ from other goods that need to be produced and allocated in society?
  • Are digital communities really "communist?" (in the Marxist sense?)
  • Questions for Discussion

    • In what ways and on what grounds does Fascism oppose Liberalism and Socialism?
    • According to Chapra, why are the positive economics and normative goals mutually inconsistent in Conventional Economic thought?
    • Because of the collective action problem, does community as an allocative principle always require absolute authority?
    • What are the basic components of a national community?
    • Can liberalism and nationalism coexist? What about liberalism and community?
    • What are your views on panhandling? How do your views reflect your deeper assumptions about political economy?
    • How would marxists critique the fascist idea of the strong nation states?
    • What is corporatism and why is it significant for the political economy of community?
    • To what extent would Rousseau applaud Mussolini's Fascist theory?
    • Can the nation-state ever be transcended? Can culture be transcended?
    • Which one of Guerovitch's arguments would Lee Kwan Yu make? Is it convincing to you?
    • Is a global community possible? Why or why not?

    Questions for Discussion Economic Nationalism

    • Why does List emphasize that the power of producing wealth is more important than wealth itself? What is his "theory of the productive powers?"
    • For List, how does the "nation" relate to his view of the labor theory of value? Why, in his view, do some countries prosper and some decline?
    • Does List believe in the ability of the market to generate wealth and provide for the division of labor in society? Explain.
    • With regard to international trade, why should a state regulate its own national industry? Does List believe that free trade is possible?
    • Keynes might agree with List's argument but takes it one step further to cast doubt on the economic liberal's assumption that free trade leads to peace. What are his doubts about that assumption?
    • According to Krasner, why is it easier for large states to engage in Free Trade (economic openness) than smaller states?
    • What is the relationship between state size, state preferences, and a state's receptivity to Free Trade?
    • What is a hegemonic system? Why would a hegemonic distribution of economic power lead to a more open international economy?
    • Why would Krasner predict that the United States would opt for Free Trade?
    • Are List, Keynes, and Krasner implying that there is a contradiction between the global impact of Free Trade and its impact on a particular nation? How do their arguments differ from those made by Ricardo and modern defenders of Free Trade and Comparative Advantage?
    • How is the anarchic international system like a prisoner's dilemma game?

Questions for Discussion: Great Depression

  • How does the Great Depression illustrate the "tendency for capital to overaccumulate?"
  • What is a "deflationary bias" and how is it explained?
  • Which school of thought in political economy (Freedom, Equality, or Community) best explains the causes of the Great Depression? Which school best explains the consequences?
  • What is Hegemonic Leadership? Is it useful in explaining the events of the 1930s? Explain your answer.
  • How do the arguments of Kindelberger and Eichengreen relate to Krasner's arguments?
  • James Divine speaks of the "laws of motion of capitalism." What does he mean?
  • What was the Gold Standard and what were its positive aspects? Why did the negative aspects outweigh them in the Great Depression?
  • What is the Tendency toward Economic Nationalism?
  • Which aspects of the Great Depression are echoed in the ongoing economic crisis that began in 2008? What is different about the two periods? Do they have similar theoretical explanations?

Questions for Discussion: Embedded Liberalism

  • Was the Liberal trade and monetary order that emerged after WW II simply "old wine in new wine bottles" or was it something distinctly different
  • What is "the compromise of embedded liberalism" and why is it significant?
  • According to Ruggie, how did the Gold Standard affect state-society relations before the Great Depression?
  • Why did the architects of the postwar international economic system decide not to bring back the gold standard? How did they propose to ensure a stable international monetary system?
  • According to Ruggie, how does trade in the Post World War II period differ from trade before the Great Depression? Why the difference

Questions for Discussion: Welfare State

  • Why does Esping-Andersen think that the Welfare State is a "power resource?"
  • Why was democracy an "achilles heel" to many liberals?
  • What is patriarchal neo-absolutism? Does it foster freedom, equality, or community?
  • Can the argument that parliamentary class mobilization is a means for the realization of socialist ideals be justified? How?
  • Why would industrialization make social policy necessary and possible?
  • Which Marxist arguments must be abandoned in order to make a strong case for the welfare state?
  • What is social citizenship and why is it a core idea of the welfare state?
  • How is the concept of "fairness" or "justice" understood differently in the three political economies of the welfare state?

Questions for Discussion: Liberal Theories of Development

  • According to liberal theories of development, why do businesses move around? Specifically, why do they move from the industrialized to the non-industrialized world?
  • How does product-cycle theory relate to comparative advantage?
  • Why are economic liberals optimistic about economic development?
  • If you were looking at current events in the world economy from Rowtow's point of view, would you say that Tunisia and Egypt are entering the "take-off" phase of development? What characteristics of the "take-off" do they exhibit?

Questions for Discussion: When Equality is the Goal--A critique of Liberal Theories of Development

  • What is Wallerstein's critique of Rostow's "stages" of development?
  • Wallerstein says that capitalism and a "world economy" are two sides of the same coin. What on earth does he mean by that?
  • What is the "development of underdevelopment" and how does it contradict the liberal view of "tradition" vs. "modernity?"
  • How does Wallerstein's division of the world economy into "core" and "periphery" differ from the liberal concept of the international "division of labor."
  • How does Wallerstein treat the historical manifestation of the concept of "freedom" in the development of the world capitalist economy?
  • According to Wallerstein, what is the relationship between capitalism and the "nation-state" in the world economy? What explains the development of "strong" and "weak" states?
  • What accounts for the stability of the world capitalist system?
  • How, according to Wallerstein, did the globalization of capitalism end slavery?
  • Is your own well-beomg wrapped up with the survival of the world capitalist system, as Wallerstein describes it? Are other alternative systems possible?
  • How does Wallerstein's view of the rise of the welfare state differ from Rowtow's?
  • Rodrick writes: "income distribution tends to be stable and rather unresponsive to policy changes." According to him, why is this so?
  • Again Rodrick writes: "A policy that increases the income of the poor by one rupee can be worthwhile at the margin even if it costs the rest of society more than a rupee." According to his argument, why is that worthwhile? Would Friedman disagree? Why?
  • What is the role of the welfare state in the world economy, according to Wallerstein?
  • Think through Rodrick's "tradeoff" questions on fiscal policy, market liberalization, and institutional reform. On each, decide your policy preference. What will be the "cost" of that policy preference.
  • Is the debate over growth vs. poverty reduction a meaningless one?
  • Is Rodrick a liberal? What kind?

Questions for Discussion: Institutions and development

  • What Does Gerschendron mean by "The Advantages of Backwardness?"
  • Can you identify the "families" and branches of political economy that Vogel and Landes belong to?

Questions for Discussion Neo liberalism

  • John Ruggie, in his discussion of "norm-governed change" describes the international political economy after the decline of U.S. hegemony in 1971, claiming that "orthodox liberalism has not governed international exonomic relations at any time during the postwar period." Why does he think that is true? Is he still correct? Why or why not?
  • What is "managed floating?" Is it better than the gold standard? Why or why not?
  • Why would some consider "orderly marketing arrangements," "voluntary export restraings," "negotiated minimum price agreements," etc. barriers to trade?
  • What is "adjustment" in international trade? What is "structural adjustment" and how does it relate to IMF conditionality requirements for lending?
  • What did the fall of the "gold-convertible dollar" mean for the international monetary system?
  • Ruggie says that embedded liberalism never reached the poor countries of the South, and Friedman argues that the South is now governed by the very beneficial Golden Straightjacket. Why didn't embedded liberalism reach the global South? What is the Golden Straightjacket and how would you argue against it? Does it undermine democracy?
  • Is the Washington Consensus the same thing as the Golden Straightjacket? Is it the same thing as neo-liberalism? Why or why not? Do you agree with Williamson's list of requirements for development?
  • Is Williamson a Keynesian? What are some hints that he is? Some hints that he isn't?
  • After reading the Williamson article, would you say that you support or oppose the "Washington Consensus?" Please explain.
  • Does Rodrick make an economic nationalist argument in his article you read for this session? Why or why not?

Questions for Discussion: The Economic Nationalist case against neo liberalism

  • How can it be that interdependence both promotes peace and conflict at the same time? Does Waltz make a strong argument?
  • How does the notion of comparative advantage harmonize with Waltz’s claims about the absence of interdependence between countries?
  • Does Waltz’s claim weaken thecase of liberals such as Ricardo and Friedman?
  • How does Waltz perceive the distinction between “power” and “wealth”?
  • Does China’s growth disprove any liberal claims about development?
  • In what sense does China’s mercantilism diminish the mutual benefits of trade? What can be done? What kind of hegemon do we need?
  • Schumpeter states: “It may seem strange that anyone can fail to see so obvious a fact which moreover was long ago emphasized by Karl Marx”. Does he side with Marx in an attack on the liberal logic?
  • Would classical liberals such as Ricardo disagree that economies are “evolutionary”? How does Schumpeter's ideas differ from the classical notion of comparative advantage?
  • What essential element do the classical liberalists overlook according to Schumpeter?
  • In which time did Schumpeter write his piece? What does that mean for his conclusions?

Questions for Discussion Globalization and Economic Nationalism

  • How can it be that interdependence both promotes peace and conflict at the same time? Does Waltz make a strong argument?
  • How does the notion of comparative advantage harmonize with Waltz’s claims about the absence of interdependence between countries?
  • Does Waltz’s claim weaken thecase of liberals such as Ricardo and Friedman?
  • How does Waltz perceive the distinction between “power” and “wealth”?
  • Does China’s growth disprove any liberal claims about development?
  • In what sense does China’s mercantilism diminish the mutual benefits of trade? What can be done? What kind of hegemon do we need?
  • Schumpeter states: “It may seem strange that anyone can fail to see so obvious a fact which moreover was long ago emphasized by Karl Marx”. Does he side with Marx in an attack on the liberal logic?
  • Would classical liberals such as Ricardo disagree that economies are “evolutionary”? How does Schumpeter's ideas differ from the classical notion of comparative advantage?
  • What essential element do the classical liberalists overlook according to Schumpeter?
  • In which time did Schumpeter write his piece? What does that mean for his conclusions?

Globalization and its impact on Community: Questions for Discussion

  • Does globalization mute or reinforce ethnic and religious (communal) identity?
  • How does globalization contribute to communal conflict?
  • What is the evidence for the claim that globalization contributes to communal conflict?
  • Is there evidence that globalization mutes communal conflict?
  • Do you agree with Huntington's argument? Why or why not?

Qustions for Discussion and its impact on Equality in the United States

  • Is the Golden Straightjacket still the only piece that countries can  find on the rack today? And how tight is it
    Is Friedman right when he argues that all politics is global? Is  globalization really reaching into every corner of the world?
    Should the U.S. government support American companies that use  foreign labor or foreign companies that use American labor? 
    What are the  arguments for and against?
    Why is it important to define ³who is us²? Has the ³us² changed from  1990 to 2011?
    How has the U.S. succeeded in terms of competitiveness of its labor  force?
    How can it be that the average American worker earns less today than  40 years ago?
    What is the Marxist critique of globalization?
    Foroohar writes: "Yet even if unemployment starts to ease, it's unclear whether  labor's portion of the pie will stop shrinking. 
    The global headwinds may be  too strong.² What logic does Foroohar refer to?  
    What is a symbolic analyst?  How does his/her work category differ from other work categories

Questions for Discussion: Globalization and the Environment

  • Are all climate-skeptics "liberals?"  Is there a connection between climate skepticism and some members of the "freedom" family?
  • What is the tragedy of the Commons? How does it manifest itself in the Arctic?
  • Liberal thought and beliefs about our own well-being are based on the assumption that economic growth is good and the optimistic belief in progress (David Landes article).  Is there any thought in any family that would criticize or question these assumptions?
  • How is the tragedy of the commons related to "large group behavior?"  Is Hardin an economic liberal?
  • Will privatization or the Coase Theorem provide solutions for some or all environmental problems?

Final Exam study questions:

  • Over the time period considered in this course, how have changes in the system of hegemony affected the domestic and international benefits from the international economy? What other factors have contributed to changes or continuities in the dispersion of benefits and costs?


  • “Once developed economically, nations are destined to become democracies. The relationship between democracy and economic development is one of symbiosis, not conflict.”

Take a stand in support of or against this assertion. In your argument, discuss whether the (positive or negative) relationship between democracy and development can be generalised or whether the relationship is contingent, that is, dependent upon the presence or absence of a hegemon or strong regimes in the global economy, timing of industrialisation and / or other factors. In addition, be sure to explain HOW democracy does or does not impact development. Provide both theoretical and empirical support from lectures and course readings for your answer.

  • Francis Fukuyama has argued that the “end of history” is upon us in the form of a “universal homogeneous state where national borders disappear.” Although he concedes that “in the real world, national distinctions do persist,” he argues that it is hard to imagine stable democracies existing outside of these national contexts. Benjamin Barber, on the other hand, has maintained that liberal democracy is threatened by opposing forces and that the ideal situation for preserving liberal democracy would be a “confederal union of semi-autonomous communities smaller than nation-states – participatory and self-determing in local matter at the bottom, representative and accountable at the top.”
    Which position better describes the future of the nation-state? In your evaluation, discuss the various forces at work today that are undermining the nation-state internally and/or externally. How would liberals, Marxists, and economic nationalists view your conclusions about the nation-state’s future? (Refer to specific theorists in your answer.)


  • Discuss the applicability of Gerschenkron’s model of development (and the varying relationships his model specifies between states and markets) in the current era of globalization, hyperliberalism, and regionalism. Assess whether a single variable relationship between states and markets is emerging. Should the developing countries establish a particular relationship between the market and the state? How do regional development, cultural contexts, and\or global conditions affect your analysis? Provide examples from readings and lectures to support your argument and in your discussion, compare Gerschenkron’s model to traditional liberal models of development, dependency models, and the economic nationalist perspective.