What is Political Economy?
Political economy is a social science that studies production, trade, and its relationship with law and government. It is the study of how economic theory affects different socio-economic systems such as socialism and communism, together with the making and implementation of public policies.
Various economic groups have their own theories of how economies should be developed; therefore, political economy is a complex field encompassing multiple political interests.
In simple terms, political economy refers to the advice that economists give to governments either about general economic policies or certain specific proposals made by politicians.
Political Economy Components
Political economy is divided into two parts: Classical Political Economy and Modern Political Economy. Classical Political Economy studies the works of philosophers such as Machiavelli, Adam Smith, and Karl Marx. Modern Political Economy, on the other hand, studies the work of modern philosophers, economists and political scientists such as John Maynard Keynes, Milton Freidman, and Friedrich Hayek.
The study of political economy is influenced by game theory, as it involves competing groups for limited resources and power judging which policies will produce the most favorable outcomes. It also has to do with the ability of the economy to achieve the desired results. The study of political economy focuses on three main areas:
1. Interdisciplinary studies
From an interdisciplinary point of view, political economy focuses on economics, sociology, and political science to understand how economic systems, political institutions, and the environment influence and influence each other.
Three interdisciplinary fields of study cover economic models of political processes, international political economy and how they affect international relations, and the allocation of resources in different economic systems.
2. The new Political Economy
The new field of political economy treats economic policy as a belief or action that should be discussed further rather than as a framework that needs to be analyzed. It brings together classical economic ideology and new advances in politics and economics. The approach rejects old ideals of state and market agency and interests and aims to stimulate political debate about the wants and needs of society.
3. International Political Economy
The study of international political economy, also known as global political economy, analyzes the relationship between economics and international relations. It draws on ideas from economics, sociology, and political science. International political economy focuses on how states and institutions use global economic interactions to shape political systems.
Political Economy Behavior
Political Economy is very interested in the advantages and disadvantages that arise with the implementation of certain policies. This gives them an idea of which groups are supporting the policy and which are not.
They also examine how individuals increase their utility by participating in political activities. Capital and labor are used to influence political processes and produce the most beneficial policy outcomes. Political behavior in an economy is shaped by:
They include the interests of individuals and groups who are able to use their power to influence policy. Individuals in government tend to promote their own economic and political interests that will help them maintain power. People outside the government are often more concerned with the results of the economic policies that are implemented.
Ideas are considered to have an important influence on policy, apart from economic and political interests. It is assumed that individuals are self-seeking and rational and that they cannot judge the outcome of all the options available to them.
Ideology allows a person to decide what they need to do in order to stay consistent with their values and basic beliefs. Incorporating ideology into the economic model allows some political action to be guided by factors other than self-interest. Some people want to enter politics simply because they want to make a difference in the world.
There are political rules that cover the Constitution and explain how leaders are elected and how new policies can be implemented. Institutions help structure the incentives faced by individuals and groups in the economy.
Political Economy Theory
Modern economist theory is broken down into three ideologies, namely:
Liberal ideology comes from the concept of labor and exchange and the use of land, labor and capital to produce durable goods. Liberal economists believe that economists can benefit everyone and that society can advance with an increase in living standards.
They think that the wishes of the community rather than the individual are of the utmost importance for decision making. They also believe in equal opportunities for all people and care about the structure of civil society.
Marxism maintains that inequality is bad, and that wealth results from labor and exchange. It does not support private ownership of resources, which is believed to lead to inequality and only supports the needs of the elite and not the whole of society.
3. Economic nationalism
It is the belief that the state has all power and that individuals must work to exploit economic benefits. The ideology states that the government must control all resources and that individuals are stupid and cannot create a cohesive society without a strong state.
Thus, political economists provide us with an understanding of how a country and a household are managed and governed by taking into account the political and economic factors associated with each.