The Enduring Societal Problem: What to produce? How to produce it? Who gets it?

These are social choices (rather than individual choices) And thus require collective action to effectively/efficiently produce the goods needed by society (military protection; clean water, sewer services, etc.)

A. Collective Action Problem Why is collective action difficult to achieve? PBS example Solution?

An economic and political system will define itself by they way that it answers these fundamental questions.

Range of possible answers: Feudalism (9th-14th century) : Fragmentation of political power; public power in a few private hands (A system based on the relation of lord to vassal to serf); armed forces secured through private contracts.

The Leviathan State: Thomas Hobbes Total centralized government control Mercantilism: an economic system designed to increase the monetary wealth of a nation by a strict governmental regulation of the entire national economy usually through policies designed to secure an accumulation of bullion, a favorable balance of trade, the development of agriculture and manufactures, and the establishment of foreign trading monopolies (post feudalism).

Capitalism/Free Market: John Locke Success of the Individual Business = Success of the Nation Federalism: Laboratories of Innovation Self-Governance: Neighborhood associations Polycentrism: All of the above/Overlapping institutions.

Economists love markets, political scientists love government institutions. Mainstream political economy takes a middle ground. When markets work well leave them alone, but sometimes governments need to step in to solve collective action problems

IV. CAUSES OF (SOME) SOCIETAL PROBLEMS: Cause of poverty? Cause of war? Cause of drug abuse? Cause of pollution?

SOLUTIONS TO THESE PROBLEMS? Market Solutions Government Solutions

LIMITS OF MARKETS: NEGATIVE EXTERNALITIES Voluntary exchange between 2 parties affects a third Pollution Is the market the enemy of the environment? Poor countries with weak markets have pollution The US environment is arguably cleaner than it was in the 1960s/70s (although there has been a decline in air quality recently) A story of a Noisy band or a sloppy neighbor Private costs v. Social costs

STATES AS SOLUTIONS A. Protection of Property Rights 1. Enforce Contracts 2. Intellectual Property Rights/Copy Rights 3. Lower Transaction Costs to do business 4. Tax Revenue for Public Goods (non- divisible/non-rival Consumption) 5. Land Use Regulation 6. Trust Busting 7. Provider of information (Incomplete Information) Example: Consumer Protection