1. Economic Growth & Scarcity
EFL Lesson 1
Economic Growth & Scarcity

2. Hypothesis for the Week:
Human prosperity and social cooperation develop spontaneously in societies that protect private property rights and encourage voluntary trade.

3. Why Should We Care?
The story of Kevin Carter: he shot this in Sudan in 1993, during famine, then chased the vulture away but did not apparently help the girl (perhaps on instruction not to touch the locals due to fear of disease...?). He later committed suicide.
NYT published the picture and was overcome by an avalanche of inquiries from readers as to what happened to the girl but she was never found again.

5. Scarcity Isn’t 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

6. Why can’t 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 ∞, trust me)
Entrepreneurship (not everybody is Jeff Bezos)
Human desires are boundless : 6.7 billion & increasing
We can never quite have it all, there is always a desire lurking in the back of our mind. We WILL be hungry again tomorrow, we will be thirsty this afternoon. We will salivate over that next chocolate bar even if we had eaten a thousand of them to this day.
It is our unfortunate predicament that the available resources will never quite match our desires and needs.
What do we call this? Scarcity.

7. 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?
Mention at the end: some choices are wiser than others, i.e. some deal better with that problem of scarcity. That is a segway into talking about growth as the most efficient way to fight scarcity and poverty because if the institutions are chosen wisely, then there will be growth. If the institutions are not chosen wisely, then there will be blood. Literally.

8. It is the most powerful weapon against poverty ever discovered!
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!

9. Economic Growth
Economic growth raises standards of living, even in the continuing face of scarcity
WHY?

10. Why are some countries rich and others poor?
Low, Middle, & High Income Nations
Why are some countries rich and others poor?

11. 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?

12. 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.

13. Economic Freedom and the Income SHARE of the Poorest 10% (2007)3
2.5
2.5
2.4
2.2
2.3 2
Lowest 10% Share of Income
1.5 1
Fraser Institute ranks nations of the world in terms of institutions that promote economic freedom and then divides them into quartiles. Note that it doesn’t seem to matter what type of government, level of resources, etc. – the poor everywhere get only about 2.5% of total national income.
0.5
bottom
3rd
2nd
top
EFW Index Quartiles

14. Economic Freedom and the Income LEVEL of the
Poorest 10% (2007, $US, PPP)
$905
$1546
$2656
$7334 $0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
bottom
3rd
2nd
top
EFW Index Quartiles
Lowest 10% Level of Income
If you’re going to only get 2.5%, you’d better hope it’s 2.5% of a BIG number.

15. Bigger “slices” mean higher standards of living
Economic Growth
Creates wealth by
“growing the pie.”
Bigger “slices” mean higher standards of living

16. 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

17. Benefits ALL segments of the economy:
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: It’s not just about the rich getting richer
Check It Out . . .

18. World Per Capita REAL GDP: 1500 - 2000
Country
1500
1700
1850
1900
1950
1970
1980
1990
2000
United States
400
527
1,806
4,091
9,561
15,030
18,577
23,201
28,403
Canada
430
1,330
2,911
7,291
12,050
16,176
18,872
22,366
France
727
910
1,597
2,876
5,271
11,664
15,106
18,093
21,277
Japan
500
570
679
1,180
1,921
9,714
13,428
18,789
21,051
United Kingdom
714
1,250
2,330
4,492
6,939
10,767
12,931
16,430
20,159
Germany
688
1,428
2,985
3,881
10,839
14,114
15,929
18,982
Italy
1,100
1,350
1,785
3,502
9,719
13,149
16,313
18,786
Mexico
425
568
 674
1,366
2,365
4,320
6,320
6,085
7,249
Brazil
459
686
678
1,672
3,057
5,198
4,923
5,556
China
600
545
448
778
1,061
1,871
3,421
India
550
533
599
619
868
938
1,309
1,885
Total Africa
414
421
601
890
1,355
1,538
1,449
1,474
Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: AD.“

19. People live longer is richer Nations!
Real per capita GDP is a good measure of social indicators. People live longer in richer nations.

20. The sad truth of our video showing parts of Africa
Child mortality drops as real GDP per capita increases. Again, use this to disabuse kids of the notion that GDP doesn’t really tell us anything about social indicators.

21. Economic Growth offers a way out!
Even the poor benefit when a nation experiences economic growth – and even in countries with communist governments.

22. The poor in China are one of the greatest beneficiaries from economic growth

23. 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.
e50s/machines_plowing.html

24. Population Growth and Important World Events
Note that 1750 is beginning of industrial revolution and productivity takes off.
~1750

25. Key to Productivity: Institutions
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:

26. What are the “rules of the game” (the accepted and expected forms of social interaction) in:
Dating ?
Ask students to define the “rules” for dating. Do you just call up a girl? Do you need “signals” to tell you what to do? How do your friends help you? Where does the Mall fit in?

27. Institutions shape Incentives
Incentives are the rewards or penalties that influence people’s choices and behavior.

28. The Institutions that matter for economic growth . . .
Open markets
Property rights
The rule of law
Entrepreneurship and innovation
are the institutions that shape the Incentives for choices about the uses of scarce resources.

29. 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.

30. 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.

31. 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