Master’s Macroeconomics Introduction: Macro Data Christopher Clarke Washington State University Jan. 9, 2017

GDP & Income Inequality Aggregate GDP (total size of a pie): the aggregate product, income, and expenditure for an economy in a given period of time GDP per capita (average size of a pie): the average GDP for each person in the economy Income Distribution (share of a pie): the distribution of GDP among different groups Capital vs labor Among households Summation vs. Distribution

GDP and the Power of a Nation GDP $Trillion  World 73.89 1  United States 18.04  European Union 16.23 2  China 11.01 3  Japan 4.12 4  Germany 3.36 5  United Kingdom 2.86 6  France 2.42 7  India 2.10 8  Italy 1.82 9  Brazil 1.77 10  Canada 1.55 11  South Korea 1.38 12  Australia 1.34 13  Russia 1.33 14  Spain 1.20 15  Mexico 1.14 16  Indonesia 0.86 17  Netherlands 0.75 18  Turkey 0.72 19   Switzerland 0.66 20  Saudi Arabia 0.65 See how this has changed dramatically for China, over time. "GDP (current US$)" (PDF). World Development Indicators. World Bank. Retrieved 31 December 2016.

GDP: China vs the U.S.

GDP: China GDP per cap / U.S. GDP per cap

Income Distribution: Capital vs Labor

GDP and the Power of a Nation: Space https://en.wikipedia.org/wiki/List_of_government_space_agencies#Budgets

GDP and the Power of a Nation: Military Further Reading: The Thucydides Trap: Are the U.S. and China Headed for War? Atlantic Monthly. Sep. 24, 2015. Link https://www.sipri.org/databases/milex

GDP and the Power of a Nation: Diplomacy U.N. located in New York City World Bank located in Washington, D.C. International Monetary Fund located in Washington, D.C. Brenton Woods favored the United States heavily. Further reading/listening: Benn Steil on Econ Talk

GDP and the Power of a Nation: Universities http://cwur.org/2016.php

GDP and the Welfare: Happiness Index A growing field in economics is trying to measure human welfare more accurately than financial wellbeing. How can GDP over measure wellbeing? How can it under measure wellbeing? Increased income does buy happiness. But only up to about $75,000 per household. Kahneman & Deaton (2010) Further reading: http://www.econtalk.org/archives/2013/06/stevenson_and_w.html https://en.wikipedia.org/wiki/Happiness_economics

Inequality: Occupy Wall Street

Inequality and the Future of Capitalism Capitalists gain profits from the “frozen labor” of the capital. They continue to grow until the proletariat rise up and topple the existing society. Communism and equality ensue. The ownership of capital is given to society at large through the state, and the benefits of capital are distributed appropriately.

Inequality and the Future of Capitalism Return on Capital is higher than the growth rate of the economy (and wages). The Great Depression and WWII destroyed vast sums of wealth, thus slowing down the rise in inequality. Vast amount of data spanning three hundred years and dozens of countries. Will win Nobel prize for the data alone.

Why study both Inequality and GDP growth? More well-rounded picture Wilkinson and Picket (2009, 2010) Almost all the problems we associate with life in modern developed societies can be traced to one common cause. (physical health, mental health, drug abuse, education, imprisonment, obesity, social mobility, trust and community life, violence, teenage pregnancies, and child well-being ) The shared answer is not, as many of our politicians would have it, to speed up and strengthen economic growth, forging policy in the fearful shadow of the markets’ reaction as if they were some kind of capricious deity. Instead, it is greater income equality: if we want to do better we need to become more equal.

Measuring Inequality How to measure inequality of a non-negative variable 𝑦(𝑖) (e.g., income for household in percentile 𝑖) with 𝑖∈[0,1]? Comprehensive Measure: Lorenz Curve Summary Measure: e.g., Gini, Variance of Log, etc. Lorenz Curve: Let the cumulative income of the bottom 𝑥 be 𝐿 𝑥 = 0 𝑥 𝑦 𝑖 𝑑𝑖 0 1 𝑦 𝑖 𝑑𝑖

Summary measure of Inequality Gini Coefficient: Let 𝐿(𝑥) denote the Lorenz curve, then 𝐺𝑖𝑛𝑖 𝑦 =1−2 0 1 𝐿 𝑥 𝑑𝑥 Variance of Log: 𝑣𝑎𝑟 𝑙𝑜𝑔 𝑦 =𝐸 log 𝑦 −𝐸 log 𝑦 2 Ratio of Percentile: e.g., 𝑃 50 − 𝑃 10 ratio 𝑦 0.5 𝑦 0.1 and 𝑃 90 − 𝑃 50 ratio 𝑦 0.9 𝑦 0.5 . Share of the top percentile (Top Quintile, Top 10%, Top 1%, Top 0.1%, etc.)

Wage Income Inequality

Household Earnings

Priv. Transfers and Asset Income

Public Transfers

Comparing earnings across the distribution

Wealth Inequality

Shares

The Hill vs. U-Shapes

More Inequality Data World Wealth & Income Database http://wid.world/