Political Science 124A International Political Economy Winter 2014

Royce 190 Professor Ron Rogowski rogowski@international.ucla.edu 3369 Bunche Hall Office Hours: Thursdays, 10-11:30 a.m., or by appointment

DESCRIPTION OF THE COURSE

During the Quarter, we will cover five major topics in International Political Economy (IPE): International trade and trade policy (tariffs, quotas, trade agreements) International migration and remittances Offshoring and outsourcing International finance (exchange rates, cross-border investment, central bank policy) Crises of the international economy: the 1930s, 2007-2009, the ongoing crises of the Euro and of European sovereign debt As the name implies, IPE combines elements of international economics with an analysis of politics, both international and domestic. Why, in some periods, do most countries practice free trade (the half-century before World War I and the almost quarter-century since the collapse of Communism), but at other times wall off international markets (the 1930s, the Soviet bloc and many developing countries after World War II)? Why was international migration almost totally unrestricted between 1850 and 1914 but beginning in the 1920s strongly restricted (the U.S. and Europe tightened immigration, the Soviet bloc forbade emigration)? How and when do the leading countries of the world agree on the rules of the road of international trade and finance (todays IMF and WTO), and what happens when they fail to agree? And what causes the occasional catastrophic collapses of the international economy (the crash of 1929-31 and the near-death experience of 2007-09)? As well see, causation runs both ways: the international economy affects, and is affected by, domestic and international politics. In the most extreme example, the collapse of the world economy in the 1930s led almost inevitably to World War II. But well also see that U.S. Populism, European Socialism, and Latin American protectionism (to name only a few) make a lot more sense in the context of the international economic changes of their time. Well also see that the international economy and domestic politics are often profoundly affected by technology by revolutions in transportation and communication, be they railroads, steamships, cargo containers, or the internet.

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To understand any of this, well need a rudimentary grasp of international economics, which is given pretty well by the Grieco-Ikenberry book (see below). Ill supplement that coverage with material in lecture and class discussion. Ive assigned four books and one newspaper subscription for this course, all of which should be available at the ASUCLA Store by now: Grieco and Ikenberry, State Power and World Markets: The International Political Economy Frieden, Global Capitalism: Its Fall and Rise in the Twentieth Century Chinn and Frieden, Lost Decades: The Making of America's Debt Crisis and the Long Recovery Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy The Wall Street Journal, 15-week subscription (also gives you access to the online edition and the archives)

I would also urge you to look fairly regularly at The Financial Times of London, which along with the WSJ offers the best day-to-day coverage of international economic events and their domestic repercussions. Both are required reading for policymakers, who also use OpEds and interviews in those publications for trial balloons or major policy pronouncements. Ill refer frequently to current news in lectures and the TAs will do the same in section, so its highly advisable to be up to date with as many of these sources as possible. Assigned readings other than the texts will be available as web links, listed usually both in this syllabus and on the course web page. There will be no required course reader. You should have no trouble accessing journal articles from campus (e.g., via JSTOR), since UCLA has site licenses for most, but off-campus you may need to log into a proxy server via BruinOnLine or VPN. In a few cases, noted in the syllabus, access will be available, for copyright reasons, only to enrolled participants in the course. The course will have two excellent TAs, Jesse Acevedo and Ryan Weldzius, both specialists in IPE. Acevedo works chiefly on migration and remittances, Weldzius on trade agreements and agglomeration. Honors section. An honors section, led by Professor Rogowski, will be available for those who choose to enroll and will meet for one hour each week, time to be determined. It will involve extra reading, chiefly from the excellent book by Alan Blinder (counted by the New York Times as one of the ten best books of 2013), After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead, and a short paper. 2

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COURSE REQUIREMENTS AND GRADING

Grading in the course will depend on: a mid-term and a final examination; preparation for, and attendance and participation in, section discussion; and performance on section quizzes. You can receive additional credit for participation in lecture. The final grade in the course will be weighted as follows: mid-term examination: attendance and participation in section section short papers (3 during quarter) final examination 15 per cent 25 per cent 15 per cent 45 per cent

SCHEDULE OF TOPICS AND READINGS

7 January What is IPE, and why and how should we study it? Grieco and Ikenberry (hereafter: G-I), chap. 1 9 January Why, and what, do countries trade? Does trade make all countries better off? G-I, pp. 19-43, on the basic theory of comparative advantage If you have previously studied international economics, you will be familiar with this (but will, I hope, find it a useful refresher). If you have not previously studied the subject, you will find the analytic tools of this section daunting, but they more than repay close study. They will underlie all of the rest of the course, and we will go over them carefully in lecture and section. Clive Crook, Beyond Belief, http://www.theatlantic.com/doc/200710/freetrade Paul Krugman: Ricardos Difficult Idea, http://web.mit.edu/krugman/www/ricardo.htm

Political Science 124 Professor Rogowski 14 January Scarce vs. abundant factors, historically and today G-I, pp. 47-50 (especially important to understand) Frieden, GC, chaps. 1-3

Winter 2014

Rogowski, Political Cleavages and Changing Exposure to Trade, American Political Science Review, December 1987. Posted on course web page, or go to http://www.jstor.org/stable/1962581 Optional: Anna Maria Mayda & Dani Rodrik, "Why Are Some People (and Countries) More Protectionist Than Others?" European Economic Review 49 (2005) 13931430, posted on course web page. Optional: Ina Jkel and Marcel Smolka, Individual Attitudes Towards Trade: Stolper-Samuelson Revisited, University of Tbingen, 2011, posted on course web page (gloss over the econometric specifications, focus on results reported in text and graphs) 16 January Lobbying and protection: quotas, tariffs, and voluntary export restraints G-I, pp. 43-47 Frieden, GC, chap. 5 Acemoglu and Robinson, Inefficient Redistribution, American Political Science Review, September 2001: Posted on course web page, or go to http://www.jstor.org/stable/3118239 Pettis, Great Rebalancing (hereafter: GR), chap. 3 21 January Is migration just another form of trade? Why and when do countries encourage or restrict it? Krugman and Obstfeld, International Economics, 7th ed., 2006, pp. 149-154, International Labor Mobility, posted on course web page. To be accessed by course participants only. Review Frieden, GC, pp. 50-54

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Williamson, Political Economy of Mass Migration, pp. 1-33 (posted on course web page) 23 January How about offshoring, or trade in tasks? See again Clive Crook, above 29 September, particularly the sentence, So far, anyway, nobody has explained why offshoring needs a new theory; it is just another kind of trade. An alternative, and currently powerful and influential, view is expressed in: Grossman and Rossi-Hansberg, The Rise of Offshoring: Its Not Wine for Cloth Anymore, paper presented at Jackson Hole Federal Reserve Conference, 2006, and in more math-heavy version in American Economic Review, December 20081 Posted on course web page, or go to http://www.kc.frb.org/PUBLICAT/SYMPOS/2006/PDF/Grossman-RossiHansberg.paper.0728.pdf 28 January What happens when international trade collapses; the Great Depression as financial crash, golden fetters, competitive devaluations, and trade wars Frieden, GC, chaps. 6 and 8-10) Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (Oxford UP, 1992), chap. 1 30 January Never again depression and war; the rise of todays free-trade regime, and of the embedded Liberalism of Bretton Woods G-I, chaps. 4 and 5 Frieden, GC, chaps. 11 and 12

1 A link to the published version is on Grossmans web page: http://www.princeton.edu/~grossman/grossman_papers.htm

Political Science 124 Professor Rogowski 4 February The collapse of Bretton Woods; the rise of floating exchange rates Background: Frieden, GC, chaps. 15-17 6 February 11 February Mid-term examination: covers all material through 30 January

Winter 2014

Exchange-rate policy: contending domestic interests, problems of international co-operation G-I, pp. 57-75. This material is hard slogging, but you will find it essential to understand what is going on today Pettis, GR, chap. 1 Jon Hilsenrath and Brian Blackstone, Inside the Risky Bets of Central Banks, Wall Street Journal, 12 December 2012. (As subscribers, you will have online access to the WSJ archive; a vanilla version without some crucial graphics will be available on the course web page.)

13 February

International institutions and free trade, or playing by the rules: WTO and IMF G-I, chap. 9 Marc L. Busch and Eric Reinhardt, The WTO Dispute Settlement Mechanism and Developing Countries, SIDA Trade Brief, April 2004, posted on course web page Browse in WTO homepage (http://www.wto.org/index.htm ); look especially at the tab to Dispute Resolution for some up-to-date cases, including last years complaint by Japan, the EU, and the USA against China regarding export of rare earths: http://www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm, cases D431D433 Optional: Historically interesting is the successful complaint against the Bush Administrations attempt at steel tariffs: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds248_e.htm and http://www.guardian.co.uk/world/2002/mar/22/usa.eu

Political Science 124A Professor Rogowski 18 February How capital flows affect developing and developed countries G-I, pp. 258-287

Winter 2014

Menzie Chinn and Jeffry Frieden, Lost Decades: The Making of Americas Debt Crisis and the Long Recovery, chaps. 1 and 2 Pettis, GR, chap. 4

20 February

The Great Recession of 2008-09: a new global crisis. (a) How it happened Chinn and Frieden, Lost Decades, chaps. 3 and 4 The Origins of the Financial Crisis: Crash Course, The Economist, 7 September 2013 (posted on course web page: to be accessed by enrolled participants only).

25 February

The Great Recession of 2008-09: a new global crisis. (b) in comparative perspective Menzie Chinn and Jeffry Frieden, Lost Decades, chaps 5-7

27 February

How did the Crash happen? Failures of U.S. regulation, corruption of ratings agencies, and blindness of central banks Roger Lowenstein, Triple-A Failure, New York Times Magazine, 27 April 2008, http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html Stephen Laraton, Agencys 04 Rule Let Banks Pile Up New Debt, New York Times, 3 October 2008: http://www.nytimes.com/2008/10/03/business/03sec.html Rupert Neate, Ratings Agencies Suffer 'Conflict of Interest', says former Moody's boss, The Guardian, 22 August 2011: http://www.guardian.co.uk/business/2011/aug/22/ratings-agencies-conflict-ofinterest Binyamin Appelbaum, Days Before Housing Bust, Fed Doubted Need to Act, New York Times, 18 January 2013: http://www.nytimes.com/2013/01/19/business/economy/fed-transcripts-opena-window-on-2007-crisis.html?pagewanted=all&_r=0 7

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Aruna Viswantha, U.S. Hits S&P With $5 Billion Fraud Lawsuit Over Mortgage Securities Ratings, Reuters, 5 February 2013: http://www.insurancejournal.com/news/national/2013/02/05/280040.htm 4 March Recovering from the Crash: the choice of policies Monetary Policy After the Crash: Controlling Interest, The Economist, 21 September 2013 (posted on course web page: to be accessed by enrolled participants only). Stimulus vs. Austerity: Sovereign Doubts, The Economist, 28 September 2013 (posted on course web page: to be accessed by enrolled participants only). 6 March The European Sovereign Debt Crisis: perils of a common currency? Pettis, GR, chap. 6 Blyth, Austerity: History of a Dangerous Idea, chap. 1 (available on course web site; to be accessed only by those enrolled in the course) Good summaries of the crisis are available from the New York Times (http://topics.nytimes.com/top/reference/timestopics/subjects/e/european_sover eign_debt_crisis/index.html ) and Wikipedia (http://en.wikipedia.org/wiki/European_sovereign-debt_crisis ) 11 March How openness affects inequality, in poor and rich countries Pettis, GR, chap. 2 G-I, pp. 244-258 Frieden, GC, chaps. 18 and 19 13 March 20 March Review session: Final Examination, 3:00-6:00 p.m.