ECN week 4
Popular in Economy of Eastern Europe
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This 7 page Class Notes was uploaded by Andrew Bashor on Sunday February 28, 2016. The Class Notes belongs to POL/ECN/HIS 370 at a university taught by Dr. Pellillo in Spring 2016. Since its upload, it has received 17 views.
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Can you just teach this course please? lol :)
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Date Created: 02/28/16
Comparative economics and failures 02/09/2016 ▯ Slow but gradual influence on market economies in Eastern Europe post-WWII ▯ Soviet Union and Eastern Europe Eastern Europe influenced by Soviet Union o Went after bougouise farmers collectivized farms became state owned o pushed for command economics Highly influenced by Stalinism in 1944 Used same plan – style economic ideas Violent and brutal takeovers in Eastern Europe o Anne Applebaum – The Crushing of Eastern Europe Many details explaining influence Even Kindergarten became state influenced to point of brainwashing ▯ Economic Growth Growth rates high o Coming off WWII Complete devastation in USSR and Eastern Europe Should expect high growth Factories getting back to work After initial growth, some growth rates went down into negatives o Numbers may not always be accurate o Production being manipulated, conspicuous production Economic Shortcomings o Growth slowed in ‘70s GDP as a % of Western Europe became worst over time* USSR tried to catch up w/ West, didn’t catch on o Western Europe grew much more quickly No country ever caught up to West All arithmetic changes in relative levels were negative when compared to Western Europe o Living standards much better in Western Europe o Market differences in different countries Georgia produced more becuz they stole from state Produced other necessary items ▯ Economic measures GDP, GDP growth o GDP might be off o What is being produced not always valued Causes conspicuous production Economic stability o Unemployment – employment more/less guaranteed by state Employees in areas where not productive Factories hoarded labor Goal ws 2 flatten investment nd keep business cycle flat Limited employment opportunities o Trade balance All decisions centralized Did not want trade arrangements between countries o Inflation / Consumer Price Index Wanted low inflation by planning prices Decisions made by gosplan o Interest Rates Loans not given, so no interest rates Things bought with savings or given by state Credit only given to enterprises, not people o Access to Education Provided by state Kindergarten – Secondary Ed Provided at higher education based on test scores o Access to Healthcare Universal All hospitals and salaries state owned Patients did have to pay under-table fees Shortages and limited modern tech o Pensions State provided if working for enterprise Usually very sizeable Older people very reminiscent about it Economic Efficiency o Comparing market vs. command economics Command became economy of shortages Long lines, fees for anything, short supply Shortages all over the place for every enterprizes Soft budget constraint allowed shortages in enterprises The supply was set, no change o Technical Efficiency o Allocative Efficiency ▯ ▯ Successes and Failures of Central Planning Criteria for Evaluating Comparative Econ Performance o Real GDP growth o Economic Stability o Economic Efficiency o Inequality The Case of Yugoslavia Reform initiatives o Higher education highly reformed ▯ ▯ Efficiency Is an efficiency curve o Defines how well a firm produces output. o Measures balance between capital and labour James Cornai arguments o Argues that capitalism has more fixed curve o Firms face harsh budget constraint under capitalism o A soft budget constraint in socialism o Incentive to increase profits by laying off workers not present in socialism USSR efficiency o Since labor was hoarded, lead to stagnation o Soft budget constraints were controlled o When saw inefficiency, pushed up output levels ▯ Arguments against USSR economics Ludwig von Misses argument o Will always result in some degree of allocative inefficiency o Without private property, no market for means of production o w/out market, no monetary prices established o w/out monetary prices, decision-makers wont b able to rationally calculate use of goods F. A. Hayek argument o Says full knowledge does not exist, only know the thousands of bits of knowledge from other directors o Prices act to bring together knowledge of parts o No price mechanism, no information about supply/demand o In centralized econ. need to bring in tons of info..very difficult ▯ Inefficiency Attributes* o 1. Centrally commanded production targets o 2. Soft Budget Constraints o 3. Collective organization of production o 4. Large kolkhoz and sovkhoz farms o 5. Lifetime employment o 6. No effective individual ornership of land and productive asset Innefficiencies due to…* o 1.Lack of consumer orientation; insensitivity o 2. Lack of profit orientation; reliance on writeoffs and subisides o 3. Free riding, moral hazard, lack of individual incentives; payment not linked to effort o 4. High monitoring costs, anonymity, lack of transparency o 5. Inability to control costs by adjusting labor o 6. Nontransferability of land and assets; lack of incentives associated with property rights ▯ Inequality Gini index o Measures extent to which distribution of income among individuals/households w/in economy deviates from perfect equality o Lorenz curve plots percentages of income received o Index measures area between Lorenz curve and hypothetical line of absolute equality percentage capital Gini index = (A)/(A+B) = Lorenz curve percent of population o The further that the Lorenz curve drops, the less equal the income is. ▯ ▯
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