Political Economy

Frontmatter

1. Introduction

Abstract

Economic policy includes the political shaping of the economy and intervention in it. Economic policy is intended to supplement the more theoretical disciplines of micro and macroeconomics by addressing concrete economic problems and their solutions. Focus of this book are issues of national economics that must be verbally analyzed because they are qualitative and thus quantitative models do not apply. The target audience for this textbook are students of political economy, economics, political science and governmental studies.

Christian A. Conrad

2. Weaknesses in Economics and Economic Education

Abstract

Quantitative oriented economics up to this point has described the behavior of economic agents and the development of the economy as a process by means of models. Quantitative models presuppose deterministic behavior. The results must be reproducible. In order to preserve such scientific accuracy, economics chose homo economicus to represent human behavioral patterns. This assumption has since been refuted in numerous experiments. In the following chapter we want to ask to what extent the quantitative economics can grasp the economic reality and thus come to the right conclusions.

Christian A. Conrad

3. Basics of Political Economy

Abstract

This chapter will give an overview of the basic problems facing the practical discipline of political economy and represents the goal of optimum economic allocation.

Christian A. Conrad

4. Modeling the Image of Man

Abstract

This chapter analyzes human behavior in the economy. What motivates people, what goals do they pursue and what makes them happy? We need the insights gained to explain unethical behavior and to move people to ethical behavior.

Christian A. Conrad

5. The Functioning of Market and Competition

Abstract

After familiarizing ourselves with the image of man and the basic tenets of political economy, we will now analyze the functions of the market and competition as the basis of our market system. We will show that the market and competition provide an allocation-efficient result and thus a welfare optimum.

Christian A. Conrad

6. Theory of Economic Systems

Abstract

After discussing the functioning of markets and competition and showing that they achieve our desired welfare optimum, let us now turn to the institutional framework of the two alternative economies within market economy and central administration. Like our social market economy, most economies in the real world are hybridized to these two alternatives.

Christian A. Conrad

7. Market Failure

Abstract

In the first chapter we saw that the market economy, the combination of market and competition, realizes the economic-policy objective of welfare optimum. Despite the benefits of the market mechanism, it cannot be used everywhere. In the following, you will see the areas in which there is so-called market failure. Market failure is when the market does not provide allocation-efficient (socially enhancing) results.

Christian A. Conrad

8. Political Failure

Abstract

Now that we have dealt with the market failure, we want to investigate the question of whether politics makes economic decisions in a pareto-efficient or socially maximizing way. The behavior of politicians and the voting procedures necessary for decisions form the political decision-making framework for economic policy. Politics manages democracy and must remedy the market failure and provide goods. To do this, it needs a bureaucracy to implement political decisions about the production of public goods. Here, too, we want to analyze the motives behind a bureaucracy and, in particular, whether it can efficiently implement political decisions.

Christian A. Conrad

9. Competition Policy

Abstract

The chapter on competition policy is designed to give you, as a future manager, an insight into German and European competition policy. Later, you can use this insight both to boost your company’s profits by averting unfair competition from your competitors and to avoid fines for competition violations.

Christian A. Conrad

10. Industrial Policy

Abstract

Industrial policy is the agglomeration of all state measures to influence the structure and development of the economy. Industrial policy is above all the attempt of politicians to strengthen their own economy through government grants, subsidies, or to delay an inevitable structural change and thereby to mitigate it socially. Although this policy is highly controversial, it is currently a significant resource with a high financial volume.

Christian A. Conrad

11. Monetary Policy and the European Central Bank

Abstract

Since you have gotten to know the first fundamental monetary theory relationships and also the subject of inflation in neoclassical terms, we will now deal with the monetary policy of the European Central Bank (ECB), whose primary objective is price stability. The knowledge gained here will allow you to form your own opinion about the development of money market interest rates.

Christian A. Conrad

12. Business Cycles Policy

Abstract

Economic fluctuations, above all as fluctuations in demand, are a major problem for people and businesses and can only be influenced to a very limited extent by economic policy. In the following lecture section, we will analyze the economic phenomenon and the effects on the economy and show the reasons for cyclical fluctuations.

Christian A. Conrad

13. International Financial Markets

Abstract

The financial crisis led to the worst depression since 1929. Only by massive economic programs could worse be prevented. Here Keynesian theory came into play. Only through globally agreed massive credit-financed government spending increases could depression be prevented. The banks had to be saved with tax money, as many banks had invested in the government bonds of weak European countries whose solvency was called into question. The sovereign debt crisis has emerged from the financial crisis. Against this background, the question arises of state regulations that limit the risk of banks. Such regulation of the financial markets has been urged by politicians and economists since the onset of the 2007 financial crisis. What has happened in the meantime? Were the right reforms implemented or could there be another financial crisis? After analyzing the causes of the crisis, the main reforms are examined below.

Christian A. Conrad

14. Foreign Trade

Abstract

As globalization progresses, international economic relationships are becoming increasingly important to managers. The following chapter will explain the basic determinants of foreign trade, international capital movements and exchange rates.

Christian A. Conrad

15. Solutions to the Exercises

Abstract

This chapter presents the solutions to the exercises in the previous chapters of this book.

Christian A. Conrad

Backmatter