ECONOMY - Antonio Ginés - IES Hnos. Machado - Dos Hermanas - Seville - Pag 1/94

TOPIC 1.- ECONOMIC ACTIVITY AND ECONOMIC SYSTEMS. PRODUCTION AND ECONOMIC INTERDEPENDENCE

COMBINATION	WHEAT	BARLEY	OPPORTUNITY COST
1	0	5	-
2	1	3	2
3	2	0	3

COMBINATION

WHEAT

BARLEY

OPPORTUNITY COST

WORKERS	TOTAL PRODUCT	MARGINAL PRODUCT	AVERAge PRODUCT
0	0	-	-
1	5,000	5,000	5,000
2	9,000	4,000	4,500
3	12,900	3,900	4,300
4	16,000	3,100	4,000
5	18,000	2,000	3,600

WORKERS

TOTAL PRODUCT

MARGINAL PRODUCT

AVERAge PRODUCT

5,000

9,000

4,000

4,500

12,900

3,900

4,300

16,000

3,100

4,000

18,000

2,000

3,600

TOPIC 2.- EXCHANGE AND MARKET. NATIONAL MAGNITUDES AND INDICATORS OF AN ECONOMY

TOPIC 6.- CURRENT ECONOMIC IMBALANCES

THE CYCLICAL CRISIS OF THE ECONOMY.-
1. Marxist economics.- For Marx, the economy based on the production of articles to be sold on the market is inherently prone to crisis. From the Marxist point of view, profit is the main engine of the market economy, but the profitability of businesses (capital) has a tendency to fall that repeatedly creates crises, in which there is massive unemployment, businesses fall, the remaining capital is centralized and concentrated and profitability is recovered. In the long run, these crises tend to be more severe and the system will eventually fail. Some Marxist authors such as Rosa Luxemburg saw the lack of purchasing power of workers as a cause of the tendency of supply to be greater than demand, creating crises, in a model that has similarities with the Keynesian model. A number of modern authors have attempted to combine the views of Marx and Keynes. Others, in contrast, have emphasized the basic differences between the Marxist and Keynesian perspectives: while Keynes saw capitalism as a system of maintenance of value and susceptible to efficient regulation, Marx saw capitalism as a historically condemned system that cannot be put down. under social control.
2. History.-
  1. 1860.- In 1860, the French economist Clement Juglar identified the presence of business cycles of 7 to 11 years, although he was cautious not to assert any rigid regularity. Later, the Austrian economist Joseph Schumpeter argued that a Juglar cycle has four stages: (i) expansion (increase in production and prices, low interest rates); (ii) crisis (the stock markets fall precipitously and there are multiple bankruptcies of companies); (iii) recession (falls in prices and production, high interest rates); (iv) recovery (the shares are recovered due to the fall in prices and income). In this model, recovery and prosperity are associated with increases in productivity, consumer confidence, aggregate demand, and prices.)
  2. Typology of business cycles.- In the middle of the 20th century, Schumpeter and others proposed a typology of business cycles according to their periodicity, for this reason a number of particular cycles were named after their discoveries or proposals:
    1. Kitchin.- The Kitchin inventory cycle from 3 to 5 years (from Joseph Kitchin);
    2. Juglar.- Juglar's fixed investment cycle of 7 to 11 years (often referred to as “the” business cycle);
    3. Kuznets.- The 15 to 25 year Kuznets infrastructure investment cycle (by Simon Kuznets);
    4. Kondratiev.- The Kondratiev wave or long technological cycle from 45 to 60 years (by Nikolai Kondratiev)
  3. Little support.- Interest in these different typologies of cycles has waned since the development of modern macroeconomics, which gives little support to the idea of regular periodic cycles.
  4. Economic stabilization.- Business cycles after World War II were generally more moderate than previous cycles. The economic stabilization policy, using fiscal policy and monetary policy, appeared so that the worst excesses of the economic cycles were lost. Automatic stabilization due to aspects of the government budget also helped defeat the cycle even without conscious action from politicians.
UNEMPLOYMENT.-
1. Types.-
  1. Frictional.- Frictional unemployment occurs when a worker changes from one job to another. While he is looking for a job, he is experiencing frictional unemployment. This applies to new graduates looking for a job as well. This is a productive part of the economy, increasing long-term worker welfare and economic efficiency, and it is also a type of voluntary unemployment. It is the result of imperfect information in the job market, because if job seekers knew that they would be employed for a particular vacancy, almost no time would be wasted in getting a new job by eliminating this form of unemployment. Frictional unemployment is always present in an economy, therefore, the level of involuntary unemployment is appropriately the unemployment rate minus the frictional unemployment rate, which means that increases or decreases in unemployment are normally underrepresented in simple statistics.
  2. Classic.- Classic unemployment or real wage unemployment can occur when real wages for a job are set above the agreed minimum level (in Spain the Minimum Wage). Liberal economists like FA Hayek argue that unemployment increases further if the government intervenes in the economy to try to improve the conditions of those with jobs. For example, the minimum wage increases the cost of low-skilled laborers above market equilibrium, resulting in people who want to work at the starting line but cannot as the imposed wage is greater than their value as workers, becoming or becoming unemployed. They believed that laws restricting firing made it less likely for businesses to hire up front, as hiring becomes riskier, leaving many young people unemployed and unable to find work. Some, such as Murray Rothbard, suggest that even social taboos (non-market, supply and demand criteria) can prevent wages from falling to the agreed level (MW).
  3. Cyclical or Keynesian.- Cyclical or Keynesian unemployment, also known as demand-poor unemployment, occurs when there isn’t enough aggregate demand in the economy. This is caused by a recession in the business cycle, and wages don’t fall to find the equilibrium level.
  4. Structural.-
    1. Definition.- Structural unemployment is caused by a mismatch between jobs offered by employers and potential workers. This can refer to geographic locations, skills, and many other factors. If such a mismatch exists, frictional employment is likely to be more significant as well. For example, in the late 1990s there was a technology bubble, creating demand for IT specialists. In 2000-2001 this bubble burst. A housing bubble soon formed, creating demand for real estate agency workers, and many computer scientists had to retrain to find employment.
    2. Permanent.- André Gorz believes that structural unemployment could be permanent in modern society, as the microchip revolution and the explosion in computer science and the robotization of work, even in the least developed countries in the industry increases productivity.
  5. Seasonal.- Seasonal unemployment results from fluctuations in labor demands in certain industries due to the seasonal nature of production. In such industries there is a seasonal pattern in the demand for labor. During the period when the industry is at its peak there is a high degree of seasonal employment, but during the off-peak period, there is seasonal unemployment. Seasonal unemployment occurs when an occupation is not in demand in certain seasons.
  6. Voluntary and involuntary.- Although there have been various definitions of voluntary and involuntary unemployment in the economic literature, a simple distinction is often applied. Voluntary unemployment is attributed to the decisions of individuals, while involuntary unemployment exists because of the socioeconomic environment (including market structure, government intervention, and the level of aggregate demand) in which individuals operate. In these terms, much or most of frictional unemployment is voluntary, as it reflects individual search behavior. On the other hand, cyclical unemployment, structural unemployment, and classical unemployment, are largely involuntary in nature. However, the existence of structural unemployment may reflect choices made by unemployment in the past, while classical unemployment may result from legislative and economic choices made by unions and political parties. Thus, in practice, the distinction between voluntary and involuntary unemployment is hard to draw. The clearest cases of involuntary unemployment are those where there are fewer job vacancies than unemployed workers, even when wages can be adjusted so that if all vacancies were filled, there would be unemployed workers. This is the case with cyclical unemployment, whereby macroeconomic forces lead to microeconomic unemployment while classical unemployment can result from legislative and economic elections made by unions and political parties. Thus, in practice, the distinction between voluntary and involuntary unemployment is hard to draw. The clearest cases of involuntary unemployment are those where there are fewer job vacancies than unemployed workers, even when wages can be adjusted so that if all vacancies were filled, there would be unemployed workers. This is the case with cyclical unemployment, whereby macroeconomic forces lead to microeconomic unemployment.
2. Cost of unemployment.-
  1. Individual.- Unemployed individuals cannot earn money to meet financial obligations. Failure to pay your mortgage or rent can lead to homelessness through foreclosure or eviction. Unemployment increases susceptibility to malnutrition, illness, mental stress, loss of self-esteem, leading to depression. According to a study published in Social Indicators Research, even those who tend to be optimistic find it difficult to see the bright side of things when they are unemployed.
  2. Social.-
    1. Production Possibilities Frontier.- An economy with high unemployment is not using all the resources, for example, available work. Since it is operating below its production possibility frontier, it could have higher output if the entire labor force were usefully employed. However, there is a trade-off between economic efficiency and unemployment: if frictional unemployment accepted the first job offered, they would probably be operating below their skill level, reducing economic efficiency.
    2. Skills-Life.- During a long period of unemployment, workers can lose their skills, causing a loss of human capital. Being unemployed can also reduce the life expectancy of workers by about 7 years.
    3. Xenophobia and protectionism.- High unemployment can encourage xenophobia and protectionism as workers are afraid that foreigners are stealing their jobs. Efforts to preserve existing jobs for national and native workers include legal barriers against outsiders who want work, obstacles to immigration and/or tariffs, and similar trade barriers against foreign competitors.
    4. Oligopsony.- Finally, a growing unemployment rate concentrates the oligopsony power of employers, increasing competition among workers for scarce employment opportunities.
3. Measure.-
  1. European Union.-
    1. Eurostat.- Eurostat, the statistical office of the European Union, defines unemployment as those between 15 and 74 years old who are not working, have looked for work in the last four weeks, and are ready to start working in two weeks, in conformity with the standards of the International Labor Organization (ILO). The Eurostat also includes a long-term unemployment rate. This is defined as a part of unemployment that has been unemployed for a period of more than one year.
    2. Three methods.- Three data collection methods are used in the European Union. First, the European Labor Force Study (EU-LFS) collects data from all member states every quarter. Second, for monthly calculations, national surveys or national records from employment offices are used in conjunction with EU-LFS quarterly data. And thirdly, on a monthly basis, unemployment rates are interpolated from the monthly data of the member states to provide “harmonized data”.
  2. Spain.- Mainly, unemployment is measured monthly with the “Labor Force Survey” (EPA) and the unemployment data registered in the Employment Offices (in Andalusia the Andalusian Employment Service -SAE-).
4. Active population.-
  1. Definition.- In economics, people in the workforce are job suppliers. The workforce is all people, not military, who are employed or unemployed. In 2005, the world's workforce was over three billion people. In Spain, in the fourth quarter of 2013, the total workforce amounted to 22,654,500 people.
  2. Working age.- Normally, the active population of a country (or other geographical entity) consists of all those who are of working age (typically above a certain age (over 14 or 16) and below the retirement age, who are participating workers, which are people actively employed or looking for work. Child labor laws in the United States prohibit people under the age of 18 from hazardous work.
  3. Unemployment rate.- The fraction of the workforce that is looking for a job but cannot find it determines the unemployment rate.
THE ENVIRONMENT AS A SENSITIVE AND LIMITED RESOURCE.-
1. The limits of growth.-
  1. 1972.- Limits to Growth is a 1972 report modeling the consequences of rapid world population growth and limited supply of resources, commissioned by the Club of Rome. Its authors were Donella H. Meadows, Dennis L. Meadows, Jorgen Randers, and William W. Behrens III. The report used the World3 model to simulate the consequences of the interaction between Earth and human systems. The book echoes some of the concerns and predictions of Reverend Thomas Robert Malthus in "An Essay on the Principles of Population." (1798).
  2. Five variables.- Five variables were examined in the original model, on the assumption that exponential population growth, with great precision, would describe their growth patterns, and that the ability of technology to increase the availability of resources grows only linearly. These variables are: world population, industrialization, pollution, food production and resource depletion. The authors intended to explore the possibility of a sustainable feedback pattern that would be achieved by altering the growth trends among the five variables.
  3. Recent updated version.- The most recent and updated version was published on June 1, 2004 by Chelsea Green Publishing Company and Earthscan under the name "Limits to Growth: The Update 30 Years Later". Donnella Meadows, Jorgen Randers and Dennis Meados have updated and expanded the original version. They had previously published: Beyond the Limits in 1993 as an update twenty years after the original material.
  4. Graham Turner.- In 2008 Graham Turner, at the Commonwealth Scientific and Industrial Research Organization (CSIRO) in Australia published a document called "A Comparison of" The Limits to Growth "with thirty years of reality". Examining the past thirty years of reality with predictions made in 1972 found that changes in industrial production, food production and pollution are all in line with the book's predictions of an economic collapse in the 21st century.
2. Environmental impact.-
  1. Oceans.- The circulation patterns of the oceans have a strong influence on climate and weather and, in turn, on the food supply of humans and other organisms. Scientists have warned of the possibility, under the influence of climate change, of a sudden alteration in the circulation patterns of ocean currents that could drastically alter the climate in some regions of the globe. The main environmental impacts occur in the most inhabited regions of the ocean's limits - estuaries, the coastline and bays. Ten percent of the world's population - some 600 million people - live in low-lying areas vulnerable to rising sea levels. Worrisome trends that require management include: overfishing (beyond sustainable levels), coral bleaching due to ocean warming and ocean acidification due to increasing levels of dissolved carbon dioxide; and the sea level rises due to climate change. Because its vast oceans also act as a convenient dump for human waste. Strategies to remedy this include: more care in waste management, legal control of fishing overexploitation by adopting sustainable fishing practices and the use of sensitive and sustainable aquaculture and fish farms, reduction of fossil fuel emissions and the restoration of coastal habitats and other habitats; coral bleaching due to ocean warming and ocean acidification due to increasing levels of dissolved carbon dioxide; and the sea level rises due to climate change. Because its vast oceans also act as a convenient dump for human waste. Strategies to remedy this include: more care in waste management, legal control of fishing overexploitation by adopting sustainable fishing practices and the use of sensitive and sustainable aquaculture and fish farms, reduction of fossil fuel emissions and the restoration of coastal habitats and other habitats.
  2. Toxic substances.- Chemical synthetic production has increased following the stimulus received during the Second World War. Chemical production includes everything from herbicides, pesticides, and fertilizers to household chemicals and hazardous substances. Aside from increasing greenhouse gas emissions into the atmosphere, chemicals of particular concern include: heavy metals, nuclear waste, chlorofluorocarbons, persistent organic pollutants, and all harmful chemicals capable of bioaccumulation. Although most synthetic chemicals are harmful, rigorous testing of new chemicals is needed in all countries for adverse health and environmental effects. International law has been established to deal with the global distribution and management of dangerous goods.
  3. Mining industry.-
    1. Erosion, etc.- Environmental issues can include erosion, sink formation, loss of biodiversity, and contamination of soil, groundwater, and surface water from chemical mining processes. In some cases, additional logging of forests is done in the vicinity of mines to increase the space available for the storage of created waste and dirt. In addition, creating environmental damage, the pollution resulting from the escape of chemical products also affects the health of the local population. Mining companies, in some countries, are required to follow environmental rehabilitation codes, ensuring that the area in which mining has been applied is returned to its original state.
    2. Arsenic, etc.- Mining can have adverse effects on the surrounding surface and groundwater if protective measures are not taken. The result can be unnatural high concentrations of some chemicals, such as arsenic, sulfuric acid, and mercury over a significant surface or underground area. Liquid residues of mere dirt or rock debris - even if they are non-toxic - also devastate the surrounding vegetation. Dumping liquid waste into surface waters or forests is the worst option here. Disposing of the waste at the bottom of the sea is seen as the best option (if the dirt is pumped to great depth). Mere storage on land and refilling the mine after it has been depleted is even better, of course, if forests do not need to be cleared for waste storage. There is the potential for massive contamination of the area around the mines from various chemicals used in the mining process, as well as potentially harmful components and metals pulled out of the ground with the ore. Large amounts of water produced from mine drainage, mine cooling, aqueous extraction, and other mining processes increase the potential for these chemicals to contaminate soil and surface water. In well-regulated mines, hydrologists and geologists take careful soil and water measurements to exclude any type of water contamination that could be caused by mining operations. The reduction or elimination of environmental degradation is imposed on modern American mining by federal and state laws, restricting operators from finding standards to protect surface and groundwater from contamination. This is best done through the use of non-toxic extraction processes such as Bioleaching. If the project site does, however, become contaminated, mitigation techniques such as acid mine drainage (AMD) need to be carried out.
3. Kyoto Protocol.-
  1. Definition.- The Kyoto Protocol is a United Nations protocol within the Framework of the Convention on Climate Change, an international environmental treaty agreed at the United Nations Conference, a treaty whose objective is to achieve the “stabilization of gas concentrations with a greenhouse effect in the atmosphere at a level that would prevent dangerous man-made interference with the climate system”. The Kyoto Protocol establishes legally binding commitments for the reduction of four greenhouse gases (carbon dioxide, methane, nitrous oxide and hexafluoro sulfide), and two groups of gases (hydrofluorocarbons and perfluorocarbons) produced by industrialized nations, like, as general commitments for all member countries. In the January 2009 update, 183 countries have ratified the protocol, which was initially signed on December 11, 1997 in Kyoto, Japan, and entered into force on February 16, 2005. Under Kyoto, industrialized countries agreed to reduce their collective greenhouse gas emissions 5.2% compared to 1990. National limitations range from 8% for the European Union, 6% for Japan and 0% for Russia. The treaty allows greenhouse gas emissions to increase by 8% for Australia and 10% for Iceland. The United States has not ratified the protocol. At the Doha summit in 2012 it was agreed to extend the Kyoto Protocol until 2020, but Russia, Japan and Canada have not agreed to this new commitment.
  2. Flexible mechanisms.- Kyoto includes what is defined as “flexible mechanisms” such as the purchase and sale of emissions, the Clean Development Mechanism and joint implementation to allow the economies involved to reach their limitations on greenhouse gas emissions by purchasing credits for reducing emissions from anywhere else, through financial exchanges, projects that reduce emissions in the economies not involved, from other economies involved, or from economies involved with excessive concessions. In practice this means that the economies not involved have no restrictions on their emissions, but they have financial incentives to develop emission reduction projects to receive “carbon credits” that can then be sold to buyer economies involved, encouraging sustainable development. Furthermore, the flexible mechanism allows the nations involved with efficient, low industrial greenhouse gas emissions, and high environmental prevalence standards to buy carbon credits on the world market instead of reducing greenhouse gas emissions domestically. The entities involved will want to acquire carbon credits as cheaply as possible, while the entities not involved want to maximize the value of the carbon credits generated from their greenhouse gas projects.
  3. Authorities.- Among the signatories, all nations have established Designated National Authorities to direct their greenhouse gas portfolio; countries including Japan, Canada, Italy, the Netherlands, Germany, France, Spain and others, are actively increasing government carbon funding, supporting multilateral carbon intentions to buy carbon credits from non-involved countries, and are working closely with major utilities, energy, petroleum and gas, and chemical conglomerates to acquire Greenhouse Gas Certificates as cheaply as possible. Virtually all countries not involved have also established Designated National Authorities to administer the Kyoto process, specifically the Clean Development Mechanism process that determines which Greenhouse Gas Projects they wish to propose for accreditation by the Executive Council of the Clean Development Mechanism.
4. REPERCUSSIONS ON ANDALUSIAN ECONOMIC GROWTH ON OUR ENVIRONMENT AND ON OUR LEVEL OF LIVING.-
  1. Huelva.-
    1. Chemical industry.- Huelva and its nearby populations are linked, from the 1960s to the chemical industry (petroleum refineries, power plants natural gas or thermal located in the city or in nearby locations). Its installation in the area was due (among other aspects) to the high degree of underdevelopment and unemployment that existed in the area in those days, and also to the need to take advantage of the nearby mining industry allowing it to continue in the country.
    2. Advantages and disadvantages.- The development of Huelva is undeniable, but so are the serious diseases associated with mining and the main ecological steps backwards. In the past, citizens were divided between those who saw the chemical area as the economic engine of the city, and those who saw it as a main problem for their health and for the Environment.
    3. Important.- Today, the area with more than 1,500 hectares (half the land of the city), is one of the most important complexes in the country, with 16 companies and more than 6,000 workers.
    4. Pérez Cubillas.- As a consequence of the activities of Fertiberia, and, to a lesser extent, FMC Foret, another 1,200 hectares are used indirectly by the chemical industry. They are the phosphogypsum pools, which are located about 300 meters from the Pérez Cubillas de Huelva neighborhood, one kilometer from the city center. Greenpeace established that the cancer rate in Huelva is the highest in Spain and recently denounced that phosphogypsum pools emit radiation 27 times higher than the allowed amount. There is a citizen platform called the “Mesa de la Ría”, which shows its concern about the negative effects of the chemical industry, in environmental and health terms.
  2. Aznalcóllar Disaster.- The mine's waste pond broke at the end of April 1998, sending a toxic wave to the Doñana National Park, one of the largest natural reserves in Europe. The spill caused damage over an area of about 30 kilometers, destroying rare plants, flora and fauna. At present, the reopening of the mine is being studied again.
CONSUMER SOCIETY. CONSUMERISM.-
1. Definition.- Consumerism refers to economic policies that emphasize consumption. In an abstract sense, it is the belief that the free choice of consumers should dictate the economic structure of a society (Productivism, especially in the British sense of the term).
2. History.-
  1. First civilizations.- Consumerism has strong ties to the Western world, but it is, in fact, an international phenomenon. People buying goods and consuming materials in excess of their basic needs (subjective) are as old as the earliest civilizations (Ancient Egypt, Babylon, and Ancient Rome, for example).
  2. Industrial Revolution.- A big change in consumerism came just before the Industrial Revolution. Whereas scarcity of resources had previously been the norm, the Industrial Revolution created an unusual situation: for the first time in history, products were available in remarkable quantities, at markedly low prices, and were therefore available to virtually everyone. And that is why the era of mass consumption began, the only era where the concept of consumerism is applicable.
  3. Alternative lifestyle.- It is good to keep in mind that, since consumerism began, various individuals and groups have consciously sought an alternative lifestyle, such as the simple life movements, ecological awareness and purchases of local products.
  4. 20th century.- Although consumerism is not a new phenomenon, it has become widespread in the course of the 20th century, and particularly in recent decades. The influence of neoliberal capitalism has made the citizens of capitalist countries extraordinarily wealthy compared to those living under economic systems under the influence of capitalist countries.
3. Critics.-
  1. Brands.- In many critical contexts, consumerism is used to describe the tendency of people to identify strongly with the products or services they consume, especially those with trademark names and perceived as attractive status symbolism, for example luxury car, designer clothes, or expensive jewelry. A culture that is permeated by consumerism can be referred to as a consumer culture or a market culture.
  2. Status.- Opponents of consumerism argue that many luxuries and unnecessary consumer products can act as a social mechanism allowing people to identify with like-minded individuals through the presentation of similar products, again using aspects of status symbolism to judge socioeconomic status and social stratification. Some people believe that relationships with a product or brand are substitutes for healthy human relationships that are lacking in societies, and with consumerism, create cultural hegemony, and are part of a general process of social control in modern society. Critics of consumerism often point out that consumerist societies are more prone to damaging the environment, to contribute to global warming and to waste resources faster than other societies.
  3. Trends.- In a capitalist market with the objective of selling, certain trends can emerge:
    1. Needs and wishes.- It is in the interest of product advertisers and sellers that the needs and wishes of consumers are never completely or permanently fulfilled, so that the consumer can repeat the consumption process and buy more products.
    2. Made to break.- Products made to break are more beneficial for the producer, the seller and, therefore, for the entire market. Consequently, planned obsolescence is embedded in the production and marketing process of new goods and services.
    3. Fashion.- It’s also profitable for the producer to make his products part of a continuously changing fashion market. By doing this, items that are still in good condition and can last for many years are considered in need of constant replacement, to keep in sync with current fashion trends.
    4. Time.- In this way, fixed earnings are secured by this self-perpetuating system, but consumers are not comfortable or satisfied for a significant period of time with what they have.
4. Modern Consumerism in the 21st century.-
  1. 1990s.- Beginning in the nineties, the most frequent reason given for attending college had changed to make a lot of money, on top of reasons such as becoming an authority in a field or helping others in difficulty. This statement is directly related to the rise of materialism, specifically in the technological aspect. At that time CD players, digital media, personal computers, and cell phones all began to integrate into the affluent everyday American way of life. Madeline Levine criticized what she saw as a major change in American culture - "a change from the values of community, spirituality, and integrity, and toward competition, materialism, and disconnection."
  2. Upper class.- Businesses have realized that wealthy consumers are the most attractive targets for marketing their products. The tastes, lifestyles and preferences of the upper class slowly spread to become the standard that all consumers seek to emulate. Not-so-wealthy consumers can "buy something new that will speak to your site in the tradition of prosperity." A consumer can have the instant gratification of purchasing an expensive item that will help improve their social status.
  3. Famous.- Imitation is also a central component of 21st century consumerism. As a general trend, regular consumers seek to imitate those who are above them in the social hierarchy. The poor try to imitate wealth, and wealth imitates celebrities and other icons. Celebrity product advertisements can be seen as evidence of the desire of modern consumers to buy products, in part or only to imitate people of higher social status. This buying behavior can coexist in the mind of a consumer with an image of oneself being an individualist.
5. Counterarguments.-
  1. Anti-consumer movement.- There has always been strong criticism of anti-consumer movements. Most of this comes from liberal thoughts.
  2. Liberal Criticism.- Libertarian critiques of the anti-consumer movement are, for the most part, based on the perception that it leads to elitism. Namely, liberals believe that no one should have the right to decide for others which goods are necessary for life and which goods aren’t, or that necessarily wasteful luxuries, and consequently hold that anti-consumerism is a precursor of central planning or a totalitarian society.
POVERTY.-
1. Definition.- Poverty is the shortage of common things such as food, clothing, shelter and safe drinking water, everything that determines the quality of life. It can also include lack of access to opportunities such as education and employment that help escape poverty and/or allow one to enjoy the respect of fellow citizens.
2. Causes of poverty.-
  1. Economic.-
    1. Recession.- In general, the main fluctuations in poverty rates over time are driven by the economic cycle. Poverty rates increase in recessions and decrease in prosperity.
    2. Economic inequality.- Even if the median income is high, it may be the case that the poverty rate is also high if incomes are badly distributed. However, the evidence of the relationship between absolute poverty rates and inequality is unequal and sensitive to the inequality index used. For example, while many Sub-Saharan countries have high inequality and high poverty rates, other countries, such as India, have low inequality and high poverty rates. In general, the extent of poverty is much more closely related to average income than to the variation in its distribution. At the same time, some studies indicate that countries that start with a more equal income distribution find it easier to eradicate poverty through economic growth. In addition, to income inequality, an unequal distribution of land can also contribute to high levels of poverty.
    3. Increases in food prices.- The poor spend a greater proportion of their budgets on food than the rich. As a result, poor households, and those close to the poverty line, can be particularly vulnerable to increases in food prices.
  2. Government.-
    1. Lack of democracy in poor countries.- The records, when we look at the social dimensions of development - access to clean water, women's literacy, health care - are even more starkly divergent. For example, in terms of life expectancy, rich democracies typically enjoy life expectancies that are nine years higher than poor autocracies. Chances of finishing high school are 40 percent greater in rich democracies than in poor autocracies. Infant mortality rates are 25 percent lower in rich democracies than in poor autocracies. Agricultural outputs are about 25 percent higher, on average, in poor democracies than in poor autocracies - an important fact, given that 70 percent of the population in poor countries is often rural. The poor democracies do not spend more on their health and education sectors, as a percentage of GDP, than the poor autocracies do, they don’t get higher levels of foreign assistance. They don’t accumulate higher levels of budget deficit. They simply manage the resources they have more efficiently.
    2. Effectiveness.- The effectiveness of governments has an important impact on the delivery of socioeconomic results for the poor populations.
    3. Legislation.- Weak legislation can discourage investment and therefore perpetuate poverty.
    4. Curse of natural resources.- Poor management of resource revenues may mean that rather than lifting countries out of poverty, revenues from such activities as petroleum production or gold mining actually lead to poverty of the common people.
    5. Infrastructure.- Government failures to provide essential infrastructure worsen poverty.
    6. Education.- Poor access to affordable education traps individuals and countries in cycles of poverty.
    7. Corruption.- High levels of corruption undermine efforts to make a sustainable impact on poverty.
    8. Welfare states.- Welfare states have an effect on poverty reduction. Today's modern, expansive welfare states that ensure economic opportunity, independence, and security in close proximity are still the exclusive domain of developed nations.
  3. Demography and social factors.-
    1. Overpopulation.- Overpopulation and lack of access to birth control methods.
    2. Delinquency.-
    3. Historical factors.- For example imperialism, colonialism and post-communism.
    4. Brain drain.-
    5. Matthew effect.- It is the phenomenon, widely observed throughout the advanced welfare states, that the middle classes tend to be the main beneficiaries of social benefits and services, even if they are primarily directed to the poor.
    6. Cultural causes.- Those who attribute poverty to common patterns of life, learned or shared within a community. For example, Max Weber maintained that the Protestant work ethic contributed to growth during the industrial revolution.
    7. War.-
    8. Discrimination.-
  4. Health care.-
    1. Poor access.- Poor access to affordable health care makes individuals less resistant to economic deprivation and more vulnerable to poverty.
    2. Nutrition.- Inadequate nutrition in childhood, an effect in itself of poverty, undermines the ability of individuals to develop all their human capacities and, consequently, makes them more vulnerable to poverty. Lack of essential minerals such as iodine and iron can affect brain development.ç
    3. Disease.- Specifically diseases of poverty: AIDS, malaria and tuberculosis.
    4. Clinical depression.- It undermines the resistance of individuals and, when they are not properly treated, makes them more vulnerable to poverty.
    5. Substance abuse.- Including, for example, alcoholism and drug abuse when not properly treated undermines resistance and can send people into vicious cycles of poverty.
  5. Environmental factors.-
    1. Erosion.- Intensive agriculture often leads to a vicious cycle of depletion of soil fertility and decreases agricultural production and, consequently, increases poverty.
    2. Desertification and overgrazing.-
    3. Deforestation.- As exemplified by the widespread rural poor in China that began in the early twentieth century and is attributed to the unsustainable felling of trees.
    4. Natural factors.- Such as climate or environmental change. Lower-income families suffer most of climate change; however, on a per capita basis, they contribute as little as possible to climate change.
    5. Geographic factors.- For example, access to fertile land, fresh water, minerals, energy, and other natural resources. On the other hand, research on the resource curse has found that countries with an abundance of natural resources creating rapid export growth tend to have less long-term prosperity than countries with less of these natural resources.
3. POVERTY LEVELS.-
  1. Absolute poverty.- Absolute poverty refers to a standard scenario that is constant over time and between countries. An example of an absolute measure would be the percentage of the population that eats less food than is needed to sustain the human body (approximately 2,000-2,500 calories per day for an adult male).
  2. Relative poverty.-
    1. Definition.- Relative poverty considers poverty as socially defined and dependent on the social context, therefore relative poverty is a measure of income inequality. Relative poverty is usually measured as the percentage of the population with incomes less than a fixed proportion or median income. There are several other different measures of income inequality, for example the Gini coefficient or the Theil index.
    2. Measure.- Relative poverty measures are used as official poverty rates in several developed countries. However, these poverty statistics measure inequality more than material deprivation or hardship. The measures are usually based on a person's annual income and often do not take into account total wealth. The main poverty line in the Organization for Economic Cooperation and Development and the European Union is based on “economic distance”, an income level set at 50% of the median income of a household.
    3. Median income.- Median income (not average income) is that level of income that allows the individuals of a society to be divided into two exactly equal groups. For example, if we have three people who earn 1 euro, 2 euros and 10 euros, the average income would be almost 4.5 euros, but the median income would be 2 (half of the observations are to the left of 2 and the other half to the right)
  3. Extreme poverty and moderate poverty.- The World Bank defines extreme poverty as living with less than a Parity Purchasing Power of $1.25 per day, and moderate poverty as less than $2 per day. It has been estimated that in 2001, 1.1 billion people had consumption levels below $1 a day and 2.7 billion people lived below $ 2 a day. The proportion of the world's population in developing countries living in extreme economic poverty fell from 28 percent in 1990 to 21 percent in 2001. Looking at the period 1981-2001, the percentage of the world's population living with less than $1 a day has dropped ___
4. Poverty reduction strategies.-
  1. Economic growth.-
    1. Distributive change.- Growth accompanied by a better distribution is better than just growth.
    2. Not enough.- Organizations such as the International Monetary Fund and the World Bank see economic growth as a necessary but not sufficient condition for poverty reduction. Therefore, it is important to note that varying poverty rates may not just and simply be related to economic growth. Some research tends to show that some countries can have economic growth and reduce poverty while other poor nations cannot.
  2. Good government.- Good government means efficient and fair government, a government that is less corrupt and that works for the long-term interests of the nation as a whole. Examples of good governance leading to economic development and poverty reduction can be seen in countries such as Thailand, Taiwan, Malaysia, South Korea, and Vietnam.
  3. Debt relief.- Given that many less developed nations have themselves incurred extensive indebtedness with banks and governments of wealthy nations, and given the interest payments on these debts are often more than a country can generate per year in export earnings, canceling part of all these debts can allow poor nations to “get out of the hole”. However, the effectiveness of debt relief is uncertain and whether or not it has lasting effects is debated. It may not change the underlying conditions that led to less long-term development in the first place.
  4. Import substitution and export industries.- The most widely used policies of East and South-West Asian countries have been successful and to reduce poverty they have substituted imports and developed export industries.
    1. Substitution of imports.- It simply means trying to discourage the importation of goods so that the domestic economy of less developed countries can begin to make the products themselves. Import substitution was carried out successfully in Taiwan. Another example is South Korea's ban on imported Japanese cars that lasted for decades. This led South Korea to strengthen its own automobile industry, now selling millions of highly valued automobiles in the United States and Europe.
    2. Export industries.- There is also a common export industries policy. With this policy, the government helps to stimulate the production of goods to export to rich nations to obtain a favorable trade balance and the capital inflow or funds for more investment. An avalanche of consumer products such as televisions, radios, bicycles, and textiles in the United States, Europe, and Japan has helped incresase the economic expansion of the Asian tiger economies in recent decades.
  5. Land redistribution.-
  6. Microloans.- One of the most popular of the new technical tools for economic development and poverty reduction is the microloans made famous in 1976 by the Grameen Bank in Bangladesh. The idea is to lend small amounts of money to farmers or villages so that these people can get the things they need to increase their financial reward. A small water pump that costs only $50 can make a big difference in a town without irrigation, for example. A couple hundred dollars for a small bridge linking a town to a city where you can market farm produce is another example.
  7. Empower women.-
  8. Fair trade.- Another method that has been proposed to alleviate poverty is fair trade, which advocates payment above the market price in addition to social and environmental standards in areas related to the production of goods. The effectiveness of this method for poverty reduction is controversial.
  9. Development aid.- The most developed nations give development aid to developing countries. The United Nations target for development aid is 0.7% of GDP; really only a few nations achieve it.
    1. Critics.- Some non-governmental organizations have maintained that Western monetary aid often only serves to increase poverty and social inequality, or because it is conditioned by the implementation of harmful economic policies in the recipient countries, or because it is linked to the importation of products from the donor country over cheaper alternatives, or because foreign aid is seen as serving the interests of the donor rather than the recipient. Critics also maintain that some of the foreign aid is stolen by corrupt governments and officials, and that higher levels of aid erode the quality of government. Politics is much more oriented towards getting more monetary aid than towards the needs of the people.
    2. Audit.- Advocates maintain that these problems can be solved with a better audit of how the aid is used. Help from non-governmental organizations can be more effective than government aid; this may be because it is better at locating the poor and is better controlled at the level of the common people.
5. Millennium Development Goals.- The eradication of extreme poverty and hunger is the First Millennium Goal. One of the objectives within this goal is to halve the proportion of people living in extreme poverty by the year 2015. In addition to broader methods, the Sachs Report (for the United Nations Millennium project) proposes a series of “Quick earnings” methods identified by development experts that would cost relatively little but could have a significant constructive effect on global poverty. Some of these “Quick earnings” are such as targeted assistance to local entrepreneurs to grow their businesses and create jobs, access to information on sexual and reproductive health, drugs for AIDS, tuberculosis and malaria, free school meals for children, legislation for women's rights, providing soil nutrients for farmers in Sub-Saharan Africa, access to electricity, water and sanitation, improving shacks and providing land for the construction of houses of public promotion, among other things.
UNDERDEVELOPMENT.-
1. Definition.- Underdevelopment is the state of an organization (for example a country) that hasn’t reached its maturity. It is often used to refer to economic underdevelopment, symptoms of which include lack of access to job opportunities, health care, clean water, food, education, and a home.
2. Overview.- Underdevelopment occurs when resources are not used for their full socioeconomic potential, with the result that local or regional development is slower, in most cases, than it should be. Furthermore, it results from the complex interaction of internal and external factors that allow the least developed countries only an unbalanced progression of development. Underdeveloped nations are characterized by a large disparity between their rich and poor populations, and a deficit trade balance.
3. Extended overview.- The economic and social development of many developing countries has not even been. They have an unbalanced trade balance that results from their dependence on primary products (usually only a handful) for their export earnings. These items are often (1) in limited demand in industrialized countries (eg tea, coffee, sugar, cocoa, bananas); (2) they are vulnerable to being replaced by synthetic substitutes (jute, cotton, etc.); o (3) are experiencing a reduction in demand with the evolution of new technologies that require smaller amounts of raw materials (as is the case with many metals). Prices cannot be raised as this simply accelerates the use of synthetic substitutes or alloys, production cannot be expanded since prices fall rapidly. Consequently, primary commodities, on which most developing countries depend, are subject to considerable short-term price fluctuations, making the foreign exchange earnings of developing nations unstable and vulnerable. Development therefore remains complicated.
4. History.- The world consists of a group of rich nations and a large number of poor nations. It is usually held that economic development takes place in a series of capitalist phases and that currently underdeveloped countries are still through a phase in history that developed countries today passed through long ago. Countries that are not now fully developed have never been underdeveloped in the first place, although they could have been.
5. Theories.-
  1. Modernization Theory.-
    1. Definition.- The Modernization Theory is a socio-economic theory, also known as the Development Theory. It highlights the positive role played by the developed world in modernizing and facilitating sustainable development in underdeveloped nations.
    2. It consists of three parts.-
      - Identification.- Identification of the types of companies, and explanation of how those designated as modernized or relatively modernized differ from the others.
      - Specification.- Specification of how societies become modernized, comparing the factors that are more or less conducive to transformation.
      - Generalizations.- Generalizations about how the parts of a modernized society fit each other, involving comparisons of stages of modernization and types of modernized societies with clarity on the prospects for further modernization.
  2. Dependency Theory.-
    1. Definition.- Dependency Theory is the body of theories of various intellectuals, Third World and First World, that suggest that the rich nations of the world need a peripheral group of poor states to maintain wealth. The Dependency Theory states that the poverty of the countries in the periphery is not because they aren’t integrated into the world system, but because of how they are integrated into the system.
    2. Poor nations - rich nations.- These poor nations provide natural resources, cheap labor, a destination for outdated technology, and markets for rich nations, without which they could not have the standard of living they enjoy. First world nations actively, but not necessarily conscientiously, perpetuate a state of dependency through various policies and initiatives. This state of dependency is multifaceted, involving economic, media control, political, banker and financial, educational, sporting and all aspects of human resource development. Any attempt by the dependent nations to resist the influences of the dependency could result in economic sanctions and/or invasion or military control. This is rare, however, and dependency is forced more by wealthy nations establishing international trade rules.
EXTERNAL DEBT.-
1. Definition.- External debt (or foreign debt) is that part of the total debt in a country that is owed to creditors from outside the country. The debtors can be the government, companies or households. Debt includes money owed to private commercial banks, other governments, or international financial institutions such as the IMF or the World Bank.
2. The debt of developing countries.-
  1. Definition.- It is the external debt incurred by the governments of the Third World countries, generally in amounts beyond the political capacity of the governments to pay. "Unpayable debt" is a term used to describe foreign debt when the interest on the debt exceeds what a country's politicians believe they can collect from taxpayers, based on the nation's Gross Domestic Product, thereby preventing it from the debt can be repaid.
  2. 1973 Petroleum Crisis.- Many of the current debt levels were amassed following the 1973 petroleum crises. Increases in petroleum prices forced the governments of many poorer nations to borrow excessively to buy politically essential supplies. At the same time, OPEC funds deposited in Western banks provided a ready source of funds for loans. While a proportion of the borrowed funds were through infrastructure and development economics financed by central governments, a proportion was lost to corruption and over a fifth was spent on weapons.
  3. Discussion on Third World debt.-
    1. Responsibility.- There is much debate about whether the poorest countries should be responsible for the debt. The legitimacy of such liability is small due to the terms of international and contract law, but much discussion in the debate has to do with the fairness or practicality of the current system.
    2. Refinance.- Critics of the practical point in this discussion might question whether unpayable debt really exists or not, since governments can roll over their debt via the IMF or the World Bank, or reach a negotiated settlement with their creditors. However, this is not a discussion that can withstand a glance at the state of essential services supposedly being provided by many of the highly indebted countries. There is overwhelming evidence that governments have financed their debts through the instigation of austerity policies targeting essential services and subsidies for essential goods. The history of Mali, for example, from 1968 onwards, provides a clear illustration of this. In fact, the requirement that governments should cover debts at the expense of their populations is integral to the strategies adopted by Washington institutions in 1982 to resolve the banking crisis triggered by the Mexican Weekend in August of that year. Austerity was one of the ways in which interest could continue to be covered, preventing liquidity problems in the banks of the United States. The same principle is evident in the design of the Highly Indebted Poor Countries Initiative. While refinancing has taken place (particularly to reduce the subsequent exposure of private creditors in 1982) it has come with conditions that have caused a development crisis negotiated by the Washington Institutions.
  4. Consequences of debt forgiveness.- Some economists argue against debt forgiveness on the grounds that it would motivate countries to delay in paying their debts, or, deliberately, to borrow more than they can afford, and that this wouldn’t prevent a recurrence of the problem. Economists often refer to this as "moral hazard." But some critics and activists for debt relief say that the problem isn’t necessarily with the borrowers, but with the borrowers, and therefore the moral hazard isn’t necessarily immoral borrowing, but immoral lending.
  5. Recent Debt Relief.- A number of impoverished countries have recently received partial or total cancellation of loans from foreign governments and international financial institutions, such as the IMF and the World Bank.
3. Odious debt.- In international law, odious debt is a legal theory that holds that national debt incurred by a regime for purposes that don’t serve the best interests of the nation, such as war or aggression, should not be enforceable. Such debts are therefore considered by this doctrine as personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under duress.

Production stage	Sales value	Cost of intermediate products	Added value
Wheat	0.03	0	0.03
Flour	0.09	0.03	0.06
Wholesale bread	0.15	0.09	0.06
Retail Bread	0.22	0.15	0.07
TOTAL			0.22

Individual bank	Deposited amount	Lented amount	Reserves
Bank A	100.00	80.00	20.00
Bank B	80.00	64.00	16.00
Bank C	64.00	51.20	12.80
...	...	...	...