System General Principles? What is it good at? What is it not-so-good at? Which countries? Liberalism Social Democracy Communism Mercantilism

Is this a case of Apple vs. Apples, or Apples vs. Elephants? Comparing Outcomes Is this a case of Apple vs. Apples, or Apples vs. Elephants?

How do we Measure wealth? Can we measure wealth?

Means of Measuring Wealth Common indicators used to compare economic development: Gross domestic product (GDP)  total market value of all goods and services produced in a country over one year Potential problems: GDP does not indicate personal income, does not necessarily value some choices (leisure, innovation) Compare across space and time  cost of living, exchange rates Therefore, purchasing power parity (PPP)  estimates the buying power of income in each country (food, housing), using US prices as benchmark Fails to describe quality of life, doesn’t include public goods (healthcare, education)

Inequality and Poverty How do you measure an absence?

Poverty and the gini index GDP doesn’t denote HOW wealth is distributed Therefore, Gini Index  mathematical formula that measures the amount of economic inequality in a society Total equality = 0, total inequality = 100 More wealth does not necessarily lead to more inequality Types of political-economic systems matter  social democracies have lower scores Most unequal states = poor, but poverty is not the same as inequality Poverty is measured in terms of absolute wealth (global poverty according to the World Bank = < $1 per day) Estimated global Gini index  70, very high Global inequality HAS declined since the 1980s, in part due to growth in Asian nations

Human Development Index Created by United Nations Development Program (UNDP)  examines total wealth, distribution, AND gives weight to income, life expectancy, and education Attempts to examine HOW wealth is used Strong correlation between standard of living and country’s GDP High education, life expectancy also associated with high GDP

Happiness Quotient Is happiness part of economic analysis? Is it part of political analysis? Maybe, but regardless– it’s a one of the most important motivators for human behavior Are richer countries are happier than poorer ones– at least those in abject poverty? “Easterlin paradox”  when standards of living rise past a certain level, happiness stagnates and income (not standard of living) becomes a better predictor of happiness Exceptions to the rich = happy assumption: Mexico, Costa Rica, Panama, Brazil  Caribbean and Latin America have overall high levels of happiness