PAPM 1000 Winter 2011 1

Carleton University Arthur Kroeger College of Public Affairs PAPM 1000: Introduction to Public Affairs and Policy Management Winter Term: History of Economic Thought

Winter 2011 Instructor: Derek Ireland Wednesday: 14:35-16:25 (2:35-4:25 PM) Office: D199 Loeb Building C164 Loeb Building Phone: 613 747 9593 Office Hours: Wednesdays From 13:00 to 14:20 --Or Email: [email protected] Determined Through Emails with Student

Course Objective The objective of the course is to provide an understanding of economic ideas and thinking, how these ideas have evolved and developed and been applied through many centuries, and the implications of economic ideas for past and current policy debates, analysis, development and management.

What do we mean by economic ideas? Economic ideas are essentially the concepts, hypotheses, presumptions, guesses and initial thoughts on cause and effect relationships that have been identified, discussed and argued about by economic thinkers over the past decades and centuries. Some of these concepts, guesses and so on are then developed into economic theories which are applied and tested in theoretical and empirical research and policy analysis in our attempts to find answers to such questions as:

. Why do consumers purchase what they do? . Why do businesses produce what they do and locate in one place rather than another? . Why do countries trade with each other and should there be more or less international trade in the future?

. Why do some countries grow faster than others? . Why are the more advanced OECD countries expected by many economists to grow much more slowly in the future? . Why is unemployment so much higher today than previously? . In the future, should we be more worried about unemployment or inflation?

. Why is pollution so hard to control? . Why do governments regulate some industries and markets more than others? . And should government involvement in the economy increase or decrease in the future?

. What are the relationships between gross domestic product per capita (GDP/capita), social well being and “happiness”? And what do these concepts and relationships mean for policy analysis, development and management in the future?

Economic thinkers have been wrestling with and testing these and other economic ideas and their implications for over 2000 years. Therefore, in this course, we will emphasize

PAPM 1000 Winter 2011 2 why ideas develop and evolve through time. The economic ideas of one period influence the ideas of later periods and how the ideas are applied in later periods. Some earlier ideas are adopted, adapted, and improved while other ideas are rejected outright – and in a few cases some of the rejected ideas make a comeback decades or a century later. In order to highlight this evolutionary process, the text book and course present these economic ideas in chronological order.

For the purposes of this course, the word economic has two meanings. The first refers to an approach to studying human behaviour. This approach conceives of and represents human behaviour as a matter of choice that is purposeful but constrained (by e.g. limited income, time, effort, interest, information and cognitive capacity).

The second meaning refers to a subject (or economic agent), through focusing on the situations, conditions and actions that affect the material well-being of individual consumers, households, companies, and other groups, including society in total. The course uses both meanings of the word economic, either one at a time or in combination.

The terms economic thinking and economic thought suggests the efforts that all of us make to understand the world around by means of both theory and experience. Theory involves developing conclusions about the world with reference to an interpretive framework or model. Experience involves developing conclusions about the world with reference to direct observation and measurement.

We will discuss how economic thinkers vary greatly and argue constantly regarding the importance to be placed on theory and experience in their efforts to comprehend the world. Moreover, earlier economic ideas and theories are often changed or dropped completely because later economic thinkers conclude that an earlier theory did not correspond with reality (or at least their perceptions of reality). This will be a recurring theme throughout this course.

An understanding of the development of economic thinking is important to persons working in or with the public sector, and therefore is highly relevant to persons in the B.PAPM program. As noted above, when policy makers and analysts define contemporary policy problems and evaluate and compare alternative government actions to address those problems, many of them use economic ideas that often have a long history which can go back many decades and even centuries. For example, when policy makers explore options to reduce unemployment, they will use and contrast the ideas of Adam Smith, Keynes, Friedman, Marx or other economic thinkers who we will discuss during this term.

Better understanding the origins of these ideas, the historical context that influenced why and how they emerged, and the ideas’ earlier evolution and applications allow policy makers and analysts to better appreciate the insights, strengths and weaknesses of these ideas.

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Economic ideas become particularly important when they are used to assess policy problems and to provide the rationale for laws, regulations, policies, programs and other government actions. The resulting changes to e.g. tax, expenditure, interest rate, procurement, industrial, trade, employment or other policies affect the material well- being of the Canadian economy and society as well as of individuals, companies and other groups either directly by making them richer or poorer, or indirectly through changing their behaviour.

Finally, the economic ideas of the past and present and the economic theories that are developed from these economic ideas are used by policy makers and analysts to evaluate and compare alternative government actions by drawing upon both theory and experience. This is done for example by: considering the appropriateness of their assumptions; the logic of their reasoning; or the ability of the theory to correspond with actual experience and the available evidence and to predict future outcomes.

During the course, special emphasis will be placed on the relevance of these many economic ideas for a post-global recession world dominated by slower economic growth, uncertain job prospects, growing inequality, and debates on the relative importance of government failure versus market failure especially in the OECD economies.

Academic Accommodation Students with disabilities that require academic accommodation are to contact the Paul Menton Center in order to complete the necessary letters. Having done so, these students should contact the course instructor at least two weeks prior to the mid-term test in order to discuss their needs.

Course Requirements The Winter Term will determine 50% of the PAPM 1000 course grade for the full year.

As described below, credit for the Winter Term will be based on tutorial contributions, four writing assignments, the Mid-Term Test, and the Final Examination. Four writing assignments will be given in weeks 3, 5, 9 and 11 (to be handed in during weeks 4, 6, 10 and 12) as described below in the Course Outline, and each assignment will have a length of no more than 750 words – which is about one and a half to two typed pages single spaced. The Mid-Term Test will be written before Winter Break during the class of Week 7 on Wednesday February 16; and the Final Examination will be scheduled during the period of April 7-21.

The Winter Term grade will be calculated using the following weights:

15%: Tutorial Contributions consisting of:

6% Attendance – This is calculated based on 0.5% per tutorial plus a bonus of 0.5% for attending all 11 tutorials, for a total maximum mark for attendance of 6%

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5% Participation – This is based on the regularity and quality of the weekly contributions to the discussions

4% Leadership – This is based on the demonstrated ability to guide the discussion. Starting from the first tutorial, each student will be required to provide one short presentation on the reading(s) for a particular week. The purpose of each presentation is to frame and inspire group discussion, not replace it. Accordingly, presentations should be under 10 minutes.

Presenters should not waste time simply summarizing the readings or paraphrasing the Lecture Notes (see below). Instead, presenters could (among other things) identify and state: the central arguments of the reading(s), develop the connections between them and the lectures or earlier readings, identify elements with which they agree or disagree, outline the reasons for their agreement or disagreement, indicate their views of the readings’ importance to past and current policy development, and pose questions in order to direct the discussion and debate during the tutorial.

Please attend and participate in your tutorials. Otherwise PAPM 1000 students are simply throwing away marks. And from what I am told and have seen for myself, the tutorials can be a lot of fun.

20% Four Writing Assignments – Each assignment will have a maximum mark of 5, and failure to hand in a writing assignment will result in a mark of zero (see below).

21% Mid-Term Test

44% Final Examination

When marking the writing assignments and the mid-term and final exams, the three TAs and I will be assessing the student’s understanding of the economic ideas and thinking of past scholars and of the differences between these ideas and scholars, and as well looking for your views on the importance of these economic ideas and thinking and their contributions to current economic thought and debates and to government policies and other actions and our prosperity and quality of life.

To repeat, the 35 marks for tutorial attendance, participation and writing assignments are critically important to your final grade. Failing to attend and participate at the tutorials and complete your writing assignments is the same as throwing away marks, and typically means that an A student receives a B and a B student receives a C .

Text Books The Main Reference for the lecture material is: Brue, Stanley L. and Randy R. Grant The Evolution of Economic Thought 7th Edition (Belmont, California: Thomson South Western, 2007)

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A Useful Writing Guide is: Babington, Doug and Don LePan The Broadview Guide to Writing, 3rd Edition (Peterborough: Broadview Press, 2005)

Both books are available at the university bookstore.

Course Format The course encompasses both lectures and tutorials. The two hour lectures on Wednesday of each week provide an overview of the development of economic ideas and thinking, including how these ideas have influenced and been applied to past and current economic policies and related government actions. The tutorials on Monday and Tuesday of the following week provide an opportunity to discuss some of the ideas associated with the development of economic thinking, with emphasis on how these ideas are applied in a selection of contemporary policy contexts. The weekly readings provide these contexts.

The Wednesday Lecture PowerPoint presentations – to be posted on WebCT 3 hours or more before each lecture – will introduce the readings, suggest questions for the tutorials, and describe the writing assignments. These assignments involve writing paragraphs of no more than 750 words to be based on the readings (see above and below).

Completed assignments are to be submitted to the TA at the start of the tutorial of the following week. Late assignments will not be accepted (and will be given a mark of zero). The Mid-Term Test and Final Examination will cover questions that draw from the textbook, readings, and lectures.

In order to bring the lectures and tutorials together, each lecture beginning in Week 2 will end with a 20 minute panel discussion, when one or two students from each tutorial group will summarize the two or three most important conclusions from their previous week’s tutorial group. Student presentations should be no more than 2 minutes leaving time for class discussion for each panel.

The members of the weekly lecture panels would likely be the presenters for the previous week. This means that each student would be a member of one “end of lecture” panel discussion during the course, and each panel on average would have between 9 and 13 members.

Students will not be marked based on their participation in these panel groups; but they are important for sharing ideas among students and with the Instructor, who can then use these ideas to better prepare writing assignment and exam questions that are interesting to the students.

The schedule for the eight tutorials is as follows.

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Tutorial Day of the Time Room TA Name Group # Week A1 Tuesday 12:35-13:25 Loeb D199 Jay Malette A2 Tuesday 10:35-11:25 Loeb D199 Adrienne Yuen A3 Tuesday 13:35-14:25 Loeb D199 Jay Malette A4 Monday 10:35-11:25 Loeb D199 Paul Minard A5 Tuesday 9:35-10:25 Loeb D199 Adrienne Yuen A6 Monday 9:35-10:25 Loeb D199 Paul Minard A7 Tuesday 12:35-13:25 Loeb B454 Doaa Mahmoud A8 Tuesday 13:35-14:25 Loeb D880 Doaa Mahmoud

Course Outline This outline presents the topic headings on a week-by-week basis. Note that there may be some slippage in topics between lectures; and that readings for the tutorials may be either added or replaced with another reading depending on current events or the progress of the course. In particular, the readings for the second half of the course may be replaced or added to during the first half of the course.

For most weeks, the Instructor is attempting to limit the readings to about 35 to 40 pages of reading per week, so that all students are able to conduct a thorough review of each article prior to the tutorial. Also note that the specified sections of the text book correspond to the lectures, but do not duplicate them. In particular, in comparison with the textbook, the Instructor during his lectures will place greater emphasis on the implications for government policy and other government actions. Therefore, reading and understanding the textbook, which is an excellent text, will be critical to successfully completing the course.

All readings, except for the text book, are to be posted on WebCT and many of them are available as well on the Internet. On WebCT, all readings and other documents for the course are under “Course Content” in folders. For example, this syllabus/course outline is in the folder “Syllabus Etc.”. Finally, the “Week” is a course week (not a calendar week), which begins on the Wednesday with the Lecture and concludes on the following Monday and Tuesday tutorials.

Week 1: Lecture 1 on January 5 and Tutorials on January 10-11

Topic: Introduction to the study of economic thought and some of the earliest ideas from European and non-European Countries.

Lecture Reading: Brue and Grant, Preface and Chapter 1

Tutorial Readings: Rebecca M. Blank “What do economists have to contribute to policy decision-making” The Quarterly Review of Economics and Finance (Winter 2002) pp. 817-824

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Steven D. Levitt and Stephen J. Dubner “Introduction: The Hidden Side of Everything” in Freakonomics (New York: William Morrow) pp. 3-15

Brue and Grant “Economic Thought from Biblical Times to the Protestant Reformation”; and “Economic Ideas from Ancient Greece” especially pp. 1-4.

Week 2: Lecture 2 on January 12 and Tutorials on January17-18

Topic: Mercantilism, the nation state and national competitive advantage

Lecture Reading: Brue and Grant, Chapter 2

Tutorial Readings: Paul Krugman “Making sense of the competitiveness debate” Oxford Review of Economic Policy (Autumn 1996), pp. 17-25

Roger L. Martin and Michael E. Porter “Canadian competitiveness: a decade after the crossroads” 2000

John Robson “It’s hard to believe we’re still debating free trade” Ottawa Citizen Summer 2009

Kevin Lynch “Canada’s Productivity Trap” Globe and Mail January 30 2010 p. 21

Week 3: Lecture 3 on January 19 and Tutorials on January 24-25

Topic: Classical thinking on national wealth and globalization: Part I, Adam Smith

Lecture Reading: Brue and Grant, Chapter 4 (pp. 45-49 and 54-59) and Chapter 5

Tutorial Readings: The Economist “A bigger world: a special report on globalization” September 20th-26th 2008, pp. 3-16 and 25-26

Joseph E. Stiglitz “Fair Trade for All: How Trade Can Promote Development” Brooks World Poverty Institute Inaugural Lecture February 1 2006

Khanna, Tarun “China Plus India: The Power of Two” Harvard Business Review December 2007, pp. 60-69

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C. Ravi “Impact of Globalization and Recession on Social and Economic Inequalities in India” September 2009

Council of Canadian Academies “Report in Focus: Innovation and Business Strategy in Canada: Why Canada Falls Short” pp 1-3 only

First Writing Assignment: To be given at Week 3 Lecture and handed in at time of Week 4 Tutorial

Week 4: Lecture 4 on January 26 and Tutorials on January 31 and February 1

Topic: Classical thinking on national wealth and globalization: Part II, Ricardo, Malthus, Bentham and Mill

Lecture Reading: Brue and Grant, Chapters 6 and 7 and Chapter 8 pp. 121-128 and 135-146

Tutorial Readings: Population Reference Bureau Staff Transitions in World Population” Vol. 59 No. 1 (Washington D.C.: Population Reference Bureau 2004), especially pp. 3-4 and 20-37

Amartya Sen “Population: Delusion and Reality,” New York Review of Books, Volume 41, Number 15 · SEPTEMBER 22, 1994

Stephen Golub “Does Trade with Low-Wage Countries Hurt American Workers” Business Review, Federal Reserve Bank of Philadelphia, March/April 1998

Gordon Laird The Price of a Bargain: The Quest for Cheap and the Death of Globalization Toronto: McClelland and Stewart Introduction pp. 1-9

Week 5: Lecture 5 on February 2 and Tutorials on February 7-8

Topic: Responses and Opposition to Classical Thinking: Part I, Socialism and Marxism

Lecture Reading: Brue and Grant, Chapter 9, pp. 149-165 and Chapter 10

Tutorial Readings: Nancy Holmstrom and Richard Smith “The necessity of gangster capitalism: primitive accumulation in Russia and China” Monthly Review (February 2000), pp. 1-15

Michael E. Lebowitz “What keeps capitalism going?” Monthly Review (June 2004) pp. 19-25

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James M. Buchanan “Economics in the Post-Socialism Century” The Economic Journal Vol. 101, No. 404, January 1991, pp. 15-21

Second Writing Assignment: To be given at Week 5 Lecture and handed in at time of Week 6 Tutorial

Week 6: Lecture 6 on February 9 and Tutorials on February 14-15

Topic: Reactions and Opposition to Classical Thinking: Part II Historicism and Marginalism – List, Schmoller, Weber, Menger, Jevons, Bastiat, Walras and Edgeworth

Lecture Reading: Brue and Grant, Chapter 11, pp. 193-201, and 203-210; Chapter 12, pp. 211-215; Chapter 13, pp. 231-249; and Chapter 14 pp. 255-262

Tutorial Readings:

A. B. Kintu “The Water-Diamond Paradox” September 25 2007

Robert M. Solow “Economics: is something missing” in William N. Parker Editor Economic History and the Modern Economist Oxford Basil Blackwell 1986 pp. 21-29

John Hicks “Is economics a science” in Mario Baranzini and Roberto Scazzieri Editors Foundations of Economics Oxford Basil Blackwell 1986 pp. 91-101

Bruce Caldwell “Hayek: Right for the Wrong Reasons”, History of Economics Society Presidential Address, Presented on 2 July 2000 Journal of the History of Economic Thought Vol. 23 No, 2 pp. 141-151

Week 7: Mid-Term Test on February 16; No Tutorials the following week

Week 8: Calendar week of February 21-25: Winter Term Break, No Lecture or Tutorials

Week 9: Lecture 7 on March 2 and Tutorials on March 7-8

Topic: The making of modern microeconomics – with emphasis on the contributions of Alfred Marshall

Lecture Reading: Brue and Grant, Chapter 15

Tutorial Readings:

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Christine Oughton and Geoff Whittam “Competition and Cooperation in the Small Firm Sector” Scottish Journal of Political Economy Vol. 44, No. 1 February 1997 especially pp. 1-10 and pp. 20-27

Fernando Alberti “The concept of industrial district: main contributions” (Undated Mimeo on the Internet)

Durlauf Steven N. “What Should Policymakers Know about Economic Complexity” The Washington Quarterly Winter 1998 pp. 157-165

Third Writing Assignment: To be given at Week 9 Lecture and handed in at time of Week 10 Tutorial

Week 10: Lecture 8 on March 9 and Tutorials on March 14-15

Topic: The making of modern macroeconomics and growth theory

Lecture Reading: Brue and Grant, Chapter 21 and Chapter 23 pp. 473-482

Tutorial Readings: Joseph E. Stiglitz “The Triumphal Return of John Maynard Keynes” Policy Innovations December 15 2008

Joseph E. Stiglitz “Obama has Confused Saving the Banks with Saving the Bankers” Democracy Now February 25 2009

Robert Reich “The Rebirth of Keynes and the Debate to Come” Good News Daily November 26, 2008

Irving Hexham “Return to Keynes or a Second Great Depression” Calgary Herald December 29 2008

Antoin E. Murphy “The Return of JM Keynes” The Sunday Business Post Online, Dublin Ireland November 30 2008

John F. Helliwell “Well-being, social capital and public policy: what’s new” The Economic Journal March 2006 pp. C34-C45

Marc Blaug “The state of modern economics: the problem with formalism” Challenge Vol. 41 No. 3 May/June 1998 pp. 35-45

The Economist “The other-worldly philosophers” July 18th 2009, pp. 65- 67

Robert Lucas “In defense of the dismal science” August 8th 2009, p. 67

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“Fear the Boom and Bust” a Hayek vs. Keynes Rap Anthem http://www.youtube.com/watch?v=d0nERTFo-Sk

Kevin Lynch “Shock and Awe: Government’s Role in Recession and Recovery” Policy Options February 2010

Sean Collins “We’re all Keynesians now? I’m not” Spiked October 16 2009

Paul Krugman “Keynes: The Return of the Master by Robert Skidelsky” The Observer Sunday 30 August 2009

Week 11: Lecture 9 on March 16 and Tutorials on March 21-22

Topic: Advances in and departures from more traditional economic thinking; Part I Imperfect and Strategic Competition, Market Power, Theory of the Firm, Mathematical Economics, Game Theory and the Chicago School

Lecture Reading: Brue and Grant, Chapters 17 and 18 and Chapter 24 pp. 493- 516

Tutorial Readings: Friedman James W. (1999) “The Legacy of Augustin Cournot” Department of Economics Working Paper 99-05, University of North Carolina Chapel Hill NC November 16 1999

Ray Rees 1993, “Tacit Collusion”, Oxford Review of Economic Policy, 1993, Vol. 9 pp. 27-40

George A. Akerlof “Behavioral Macroeconomics and Macroeconomic Behavior” The American Economic Review, Vol. 92, No. 3 (June, 2002), pp. 411-433

Fourth Writing Assignment: To be given at Week 11 Lecture and handed in at time of Week 12 Tutorial

Week 12: Lecture 10 on March 23 and Tutorials on March 28-29

Topic: Other advances in and departures from more traditional economic thinking; Part II Institutions, Information, Innovation, and Behaviour

Lecture Reading: Brue and Grant, Chapter 19

Tutorial Readings:

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Rudolf Richter “The New Institutional Economics – Its Start, Its Meaning, Its Prospects” European Business Organization Law Review Vol. 6 2005 pp. 161-200, especially 161-171 and 189-190

Douglass C. North “The New Institutional Economics and Development” Washington U. St Louis 1992 (Available on the Internet)

Joseph E. Stiglitz “Information and the Change in the Paradigm in Economics”, Columbia Business School, Columbia U., New York, Prize Lecture, December 8, 2001, especially pp. 472-486 and p. 524 (Concluding Remarks)

Nava Ashraf, Colin F. Camerer and George Loewenstein “Adam Smith, Behavioral Economist” Journal of Economic Perspectives Volume 19, Number 3 Summer 2005 Pages 131–145

Week 13: Final Lecture 11 on March 30 and Tutorials on April 4-5

Topic: Economics, society, welfare, and notions of the public interest – and some “thoughts” on the future of economic thought

Lecture Readings: Brue and Grant, Chapters 20 and 25

Tutorial Readings:

Layard Richard “Happiness: Has Social Science a Clue?” Lionel Robbins Memorial Lectures 2002/3 pp 1-24

Centre for the Study of Living Standards (CSLS) “Does Money Matter” Summary of the Key Findings from Report Does Money Matter: Determining the Happiness of Canadians November 2010

F. H. (Frank) Hahn “The Next Hundred Years”, The Economic Journal Vol. 101, No. 404 January 1991, pp. 47-50

William J. Baumol “Toward a Newer Economics: The Future Lies Ahead!” The Economic Journal Vol. 101, No. 404, January 1991, pp. 1-8

Review Session and Final Panel Discussion from Previous Week’s Tutorials (Time and Place to be Determined

Optional Readings for your “reading pleasure”, when time and interest allow, include:

Jack E. Adams “David Ricardo’s Theory of Value: A Revisit” Atlantic Economic Journal 1985

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Frederic Bastiat “That Which is Seen and That Which is Not Seen” July 1850

Heinrich Bortis “Review Article: Marshall, the Keynesian Revolution and Sraffa’s Significance” Journal of Economic Studies Vol. 30 (1) 2003 pp. 77-97

S. Bowles S. “Endogenous Preferences: the Cultural Consequences of Markets and Other Economic Institutions” Journal of Economic Literature, Volume 36 (March 1998), pp. 75-111

The Economist “Globalization and its critics: a survey of globalization” 29 September 2001

John Kenneth Galbraith “Economics in the Century Ahead” The Economic Journal Vol.101, No. 404, January 1991, pp. 41-46

Eli Ginzberg “Wesley Clair Mitchell” History of Political Economy 29:3 1997

Albert O. Hirschman “Rival Views of Market Society” in Rival Views of Market Society and Other Recent Essays (New York Viking 1986) pp. 105-140

Jane Mansbridge “On the contested nature of the public good” in Walter W. Powell and Elisabeth S. Clemens” editors Private Action and the Public Good (New Haven: Yale University Press, 1998) pp. 3-19

D. W. MacKenzie “Veblen, Hayek and Coase and the History of Institutional Economics” June 2009

Edythe S. Miller “Evolution and Stasis: The Institutional Economics of David Hamilton” Journal of Economic Issues Vol. XXXVI (1) March 2001 pp. 51-63

Report by the Commission on the Measurement of Economic Performance and Social Progress Professor Joseph E. Stiglitz, Chair, Columbia University Professor Amartya SEN, Chair Adviser, Harvard University Professor Jean-Paul FITOUSSI, Coordinator of the Commission, IEP 2009 (Also Known as the Sarkozy Report) 2009

Dani Rodrik “Growth after the Crisis” Harvard Kennedy School May 1 2009

Nicholas Stern “The Determinants of Growth” The Economic Journal Vol.101, No. 404 January1991 pp. 122-133

Others will be noted in the Lecture Notes and placed in the Optional Readings Folder on WebCT as the terms moves forward.