Section One: 1. What is, “Utilitarianism” and why is it important to the study of businessgovernment relations? Utilitarianism is a usually described as the greatest happiness for the greatest number. It reflects the action that produces the most happiness for people; meaning that an action is good if it produces a higher ultility of happiness. The thoery treats all members of a society equally, balances the inequalities in wealth between rich and poor people and justifies human acts. For example, consider a single mother stealing baby formlua.
In this case, the mother is not harming anyone else and her baby is getting the food it needs. The happiness of the mother is justified because her actions did not harm anyone, and her baby having enough food increases her ulitily. John S. Mill would focus on the things that give people happiness rather than judeging actions based on religion and culture. Critisicsms of utilitariansim can also be made. It is understood that utilitarianism measures the total hapiness of people. However, it is not not right to assume that two people will have the same level of utility over something.
An example of this can be depicted in the following scenario. Person A loves horses and buys a new sadle which gives her a total util of 50. Person B rather, is interested in sports car. Person B is uninterested in the saddle and would most likely produce a util of about 10. Therefore it is unpossible to say that levels of utility are compareable amongst people. Another criticsm of utilitarianism is that it fails to promote individual rights. Say that a mother likes hitting her child, and while doing so, her level of utility increases.
Utilitarianism would support the mother and justify her acts because she is obtaining an increasing amont of utility. However, hitting your child repetively is morally and ethically wrong. But, in this case, according to utilitarianism, the utility gain of the mother is greater than the utility cost endured by the child. Utilitarianism is important to the study of business-government relations because it allows governments to justify the inequalities between rich and poor and it justifies human acts. 3. What is, “Social Contract Theory” and why is it important to the study of business-government relations?
Social contract theory suggests that a fair system is where people agree to join, like a contract they have agreed to. Rawls, the founder of social contract theory explains his appraoch by using the concepts of the viel of ignorance and the maxi-min principle. Rawls recognizes that indviduals have a strong sense of self-interest, and so people have a natural tendency to want to help themselves. However if everyone tried to better themselves, it would distort society and would be impossible to create a just system.
In the veil of ignorance prinicple, Rawls says that people know the basic facts of socieity, but do not know who they are. They do not know their sex, whether they will be rich or poor or smart or dumb, etc. , and so people will begin to assume their identities. Therefore, people are under the veil of ignorance. Under the veil, people are unable to select unfair principles because they do not know how the prinicples they chose will affect them. When you enter into a social contract, you are ultimately agreeing to be apart of a society were the established rules are designed to govern any sort of social/political community.
You are agreeing to a set of rules that protect and enhance your life, even if you are at the low part of society. The veil theory tries to promote a unprejudice society and helps construct it so there is fairness and equality for all. The second principle included in Rawls social contract theory is the min-max prinicple. This principle is designed to maximize the success of the person who is worst-off. Because social contract theory suggests that a society willinginly accepts to live under the rules and regulations of a particular area, the role of government becomes crucial.
To sustain a compeitive and cooperative atmosphere amongst businesses, governments must enforce rules and policies to ensure that all business transations and relationships remain ethical. The role of governments then, is to focus on redistribution and distributed fairness. 1. What is the, “Normative Theory of Government” and why is it important to the study of business-government relations? The normative theory of government is a theory that explains what the government ought to, or should so. Normative theorists believe that the government and its policies should promote public interests.
This can also be known as the public interest approach. The public interest is made up of values and beliefs that vary over time through social and religious type groups. The four categories used by analysts for government intervention are; economic efficiency, macro economic stabilization and growth, fairness, and other social objectives. Economic efficiency is a big rationalization for government intervention. Economic efficiency is a term which is used widely. During times of economic pressure, economic efficiency can be defined as a reaction in trying to make the per capita benefits as high as possible.
This goal can be achieved through increasing the public consumption of goods and services. Normative theorists believe that governments should monitor economic functionality and whether or not it is operating appropriately in regards to market growth or failures. Secondly, macroeconomic policies are designed to ensure the business cycle is functioning smoothly along with maintaining low unemployment and inflation rates. The government has to efficiently manage its spending in order to create more jobs and to stimulate aggregate demand. Fairness or equity is another important category used by normative theorists.
When talking about fairness, the example of the economic pie, as discussed in class comes to mind. Economic efficiency makes attempts to increase the size of the economic pie. Fairness (equity) is how this economic pie is ultimately distributed throughout various institutions within the state. Ethics, morality, sanctity of life, and freedom from discrimination are also factors of fairness; a prime example would be the Canadian healthcare system. The healthcare policy in Canada dictates that all individuals should receive equal level of health care.
Also, this public policy protects the interest of individuals who are unable to protect themselves such as children. Finally, Other social objectives can be defined as government aims that are not related to the other three categories. For example governments may try to promote national unity or culture as a goal and promotion of certain community values by putting limitations on alcohol and gambling. Normative rationale for policy must be based on at least one of these four categories. Section Two: 1. The documentary, “Inside Job” provides an interpretation of the causes and consequences of the 2008 global financial crisis.
Is this interpretation compelling? Be sure to include institutional, ideological and interest factors in your analysis. The movie, the Inside Job describes the economic downfall of the U. S. housing market in 2008. This made many national markets spiral downwards and resulted in a global finanical crash. In my opinion, the documentary accurately interpreted the nature of the crisis correctly as it depicted insitutional, ideological and interest factors that all were all contributing factors that led to the global crisis. The movie began by depicting the economic instabilites of Iceland.
September 2008, Iceland’s government privatized 3 of their largest banks. Over a 5 year period, 120 billion dollars was borrowed, but the banks collapsed and unemployment trippled in 6 months. 1/3rd of Iceland’s financial regulators went to work for the bank, while others suffered from great financial loss. Another example of how the documentary depicts how institutions played a big role in the financial market is through the credit rating agencies. Credit rating agencies took faulty loans, even though they knew that people would be unable to repay them.
They rated risky loans as subprime ones to earn more profits and to increase their leverage. Soon both the loans and lenders went bad and the loan bubble started to unravel, resulting in the collapse of many investment banks. The movie depicted the interest in creating profits from the sales of faulty mortgages. In order to get a mortgage, lenders would sell the mortgage to investments banks, who would then sell the mortgage to investors. The mortgages were given high ratings, even if the lendees couldn’t repay them.
Lenders took the chance of making riskier investments because the more loans they sold, the more profit they made. The number of risky mortgage loans that were given out quadroupled, and home prices went up by about 190%. The interest here was to increase profits and higher leverage, knowing that loans were wrongly rated. Throughout the movie, it was shown on various accounts that investment banks and insurance companies came up with new ideas to increase their profits. AIG, one of the largest insurance companies continued in endorsing wrongful loans.
For exmaple an investor bought a loan and then paid AIG a premium. If the loan was bad, AIG would pay investors back. Because the loans were unregulated, this fraudulent activity went on for a while. In all, the documentary did a good job by depicting the financial crisis of 2008. Through the explainations of institutions, interests and ideologies, one can fully understand the market crash.
2. What do the terms, “Keynesianism” and, “Laissez-Faire” mean? Are these terms helpful to understanding the study of business-government relations today? The business-government relationship oday has varied over the past era. The Keynesianism and Laissez-Faire appraochs vary widely. John M. Keynes was a macroeconomist whose Keynesianism thoery had a influential effect on how the government could be involved in the economy. The Laissez-Faire apprach to government involves a more laid back attitude and reflects minimal government interference. Laissez-faire economics refers to a free, compeitive market. There is a strong emphasis on markets that have individual suppliers and purchasers, independent choices, and limited regluation.
This approach to the economy only lasted until the great depression of the 1930’s. During this period of econmic crisis, Keynesian economics was becoming more popular. John M. Keynes’s Keynesian theory has an emphasis on state intervention, and public spending to help reduce unemployement rates. The Keynesian era was characterized by the formation of crown coporations, massive government spendings for war projects and and projects to promote employment and infrastructure. In 1929, the stock market crashed and marked the era of the great depression.
Keynes wrote a book, the General Theory, which had a huge influence on the business-government relationship which explained ways for the government to be involved in the economy. He focused on aggregate demand and monetary and fiscal policies. In order to stimulate the economy, the government requires aggregate demand, the demand for goods and services. Keynes argued that in order to rise from the great depression, the gap had to be filled by government spending. In the 1920’s people were unemployed and were not spending money on goods and services. In turn then, the demand for employment decreased and unemployment rose.
He said that the government should spend money and invest in the economy during a recession to boost demand and help return the economy to full employment. In adition, he argued that the government should then refrain from spending when the economy is doing well. Keynes suggested two ways in order to stimulate the economy during the time of the great depression: monetary and fiscal policy. Our central bank has complete discretion over our monetary policy. Keynes believed that a reduction in interest rates and an increase in money supply would help contribute in reaching an equilibrium in a recession.
The second way Keynes believed the economy could be stimulated during the recession was through fiscal policy, where the government changes their spending and taxes. According to Keynes, in a recession, the government should lower its taxes and increase their spending. Though the government approach to economics changed from laissez-faire to Keynesian economics, Keynesian economics was challenged by stagflation. Stagflation is continuous inflation and recession were aggregate demand decreases, meaning that there are high interest rates and high unemployment, and consumer power goes down.
However, laissez-faire economics is still prevalent in societies today. Differentiating between the two approaches and understanding them is important when understanding state dynamics and economic decisions made by the government. Laissez-faire econmics is reflected through the abandonment of the gold standard, deregulation and Keynesian economics can be related to the privatization of health care in the United States or the repeal of the glass-stegall act. Understanding these terms can be useful today. Though the exmaples provided, one can see the difference between two appraoches.
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