EFL Lesson 1

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EFL Lesson 1

• Economic Growth Scarcity

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Hypothesis for the Week
Human prosperity and social cooperation develop
spontaneously in societies that protect private
property rights and encourage voluntary trade.
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Why Should We Care?
http//www.flatrock.org.nz/topics/odds_and_odditie
s/ultimate_in_unfair.htm
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(No Transcript)
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Scarcity Isnt Optional

• Fact Resources ARE limited
• Land (natural resources)
• Labor (human effort)
• Capital (buildings, machines, technology)
• Entrepreneurship (willingness to risk)
• Time
• Fact Human desires are boundless

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Why cant we have all we want?

• Available resources are limited
• Land (57,506,000 sq mi. not even all
  habitable!)
• Labor (6.7 bil. souls x 24 hrs a day)
• Capital (less than 8, trust me)
• Entrepreneurship (not everybody is Jeff Bezos)
• Human desires are boundless 6.7 billion
  increasing

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Scarcity Choice

• Although we cannot have it ALL
• we still can have SOME .
• So
• What shall we have?
• How much of it?
• How shall we produce it?
• Who will get it?

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Economic Growth

• Economic growth raises standards of living, even
  in the continuing face of scarcity
• Growth does not eliminate scarcity but may
  attenuate it (some things become less scarce)
• Growth is
• Not even across times and countries
• Not automatic
• Not irreversible
• BUT!
• It is the most powerful weapon against poverty
  ever discovered!

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Economic Growth

• Economic growth raises standards of living, even
  in the continuing face of scarcity
• WHY?

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Low, Middle, High Income Nations
Why are some countries rich and others poor?
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Questions

• Why are some countries rich and others poor?
• Why have some countries experienced economic
  growth and others have not? (What factors lead to
  economic growth?
• Why are some countries growing rapidly today and
  others are not, even though they may have
  experienced significant growth in the past?
• What can be done to promote economic growth and
  reduce poverty?

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What Factors Lead to Economic Growth?

• Economic growth raises standards of living, even
  in the continuing face of scarcity
• WHY?

What does the evidence tell us? Look at the
following graphs.
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Economic Freedom and the Income SHARE of the
Poorest 10 (2007)
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2.5
2.4
2.5
2.2
2.3
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Lowest 10 Share of Income
1.5
1
0.5
0
bottom
3rd
2nd
top
EFW Index Quartiles
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Economic Freedom and the Income LEVEL of the
Poorest 10 (2007, US, PPP)
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Economic Growth
Creates wealth by growing the pie.
Bigger slices mean higher standards of living
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Measuring Standard of Living

• Gross Domestic Product (GDP)
• Total dollar value of all goods and services
  produced in a country in any one (calendar) year.
  
• Nominal GDP value in current dollars
• Real GDP value adjusted for purchasing power
• GDP per capita GDP / Population

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Economic Growth
Benefits ALL segments of the economy

• Measurement REAL per capita GDP
• Real means adjusted for purchasing power
• Evidence Relative changes over time
• Conclusion Its not just about the rich getting
  richer
• Check It Out . . .

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World Per Capita REAL GDP 1500 - 2000
http//www.ggdc.net/maddison/ Source GDP data
from Angus Maddison, "Historical Statistics of
the World Economy 1-2003 AD.
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People live longer is richer Nations!
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The sad truth of our video showing parts of Africa
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Economic Growth offers a way out!
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The poor in China are one of the greatest
beneficiaries from economic growth
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The Secret to Economic Growth Productivity

• The output produced from a given set of resources
  in a given period of time.
• Increasing productivity means that greater output
  is produced from a given set of resources in a
  given period of time.
• http//www.livinghistoryfarm.org/farminginthe50s/m
  achines_plowing.html

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Population Growth and Important World Events
1750
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Key to ProductivityInstitutions

• The formal and informal rules of the game that
  shape incentives and outline expected and
  acceptable forms of behavior in social
  interaction our institutions help protect
  property rights.

Institutions in your life
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What are the rules of the game (the accepted
and expected forms of social interaction) in
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Institutions shape Incentives

• Incentives are the rewards or penalties that
  influence peoples choices and behavior.

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The Institutions that matter for economic growth
. . .
are the institutions that shape the Incentives
for choices about the uses of scarce resources.

• Open markets
• Property rights
• The rule of law
• Entrepreneurship and innovation

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The Logic-of-Growth Cascade

• What is the best way to alleviate scarcity?
• Economic growth
• What is the source of economic growth?
• Increasing productivity
• How could productivity increase?
• Technological change
• Improved management
• Skill and education
• What turns could into
  will?
• The right INSTITUTIONS.

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The Big Ideas from Lesson 1

• Scarcity forces us to choose among alternatives
• Economic growth gives us more to choose from and
  raises standards of living by
• reducing infant mortality,
• Increasing life expectancy,
• reducing hunger,
• improving environmental quality, and
• reducing the incidence of debilitating diseases.

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The Big Ideas from Lesson 1

• Some institutions and institutional arrangements
  encourage economic growth and some do not.
• The institutions that foster growth and economic
  development include
• Open markets
• Property rights and the rule of law
• Entrepreneurship and innovation