Political economy is the study of how economic forces relate to laws and the political environment, both national and global. This lesson will explore that relationship, aspects of its history, and discuss what is being done with it today.
Political Economy Defined
Political economy is the study of how economic forces, such as supply and demand, trade, how goods are manufactured, and the distribution of wealth, relate to laws and the political environment, both national and global. The linking of the subject areas of politics and economics can appear to be natural. One can think of Occupy Wall Street movement and see both subject areas working together. The poor economic conditions that affected the protesters led to a demand for a political response to improve these conditions.
This lesson is going to examine this relationship between economics and politics. We'll also look at political economy at the international and local levels.
Politics and Economics Examined
So, how do politics and economics mix? Politics and economics appear to be equals as both will try to influence each other. Let's look at the sale of goods internationally to understand this mix better.
To sell goods in another country, a corporation must ensure that their goods, either in creation or just the goods themselves, don't violate any laws of the country they're being sold to. That also means that trade laws are going to be re-examined and/or rewritten. An education in just economics may not be enough to help you understand what's going on. This is where political economy can be and has been useful.
Local and International Levels
It's easy to think we're just living our lives and that we don't affect the world at large. Most of the time you'll probably be right, but there are major parts of recent history that hint this view may not be accurate all the time.
Let's take the economic crisis of 2008. You could probably go through a lot of lessons on it, but let's just focus on a couple of aspects. When you take out a loan to buy a home, you go into debt. That's fairly simple, right? The bank doesn't loan you that money to be nice. They charge interest on it, so that they make a profit once you repay the loan. That also means that the bank will have to wait 15-30 years to make money off its loan. A practice that banks use is to sell their debt. Your money would not go to the bank in this scenario but rather to whomever bought the debt.
This can become problematic for whomever bought the debt if you fail to pay back the loan plus the interest anticipated. This happened in 2008. Many Americans failed to pay their loans, and the international buyers of this debt were left with a debt that was now worthless. What we saw at the local level was people losing their homes, but the international implications were disastrous for the market. This unexpected disaster forced the American government as well as international actors to get involved to prop the failing market up to avoid worse scenarios.
Let's review what we've learned…
Politics and economics might seem to be separate forces that have varying strength related to one another, but in fact, they appear as equals. We see this in the concept of political economy. Political economy is the study of how economic forces, such as supply and demand, trade, how goods are manufactured, and the distribution of wealth, relate to laws and the political environment, both national and global.
It appears regularly in our lives regardless of whether we notice it in a restaurant, a store, or in a foreclosure of a house down the street. International political economy feels about as near to us as the stars in the night sky, but our actions can affect international political economy, as evidenced by the effects of the 2008 economic crisis. It is all connected, even if it may be difficult to see how. We also learned that politics and economics work together without any one side being dominant.