1. Development
of the
Global Economy

2. The Importance of Productivity
Lecture #1
The Importance of Productivity
in an Age of Dilemmas

3. A dilemma is a problem with two putative solutions, neither of which is unambiguously better than the other .
Short Run vs. Long Run
Rules-based Policy vs. Discretion-based Policy
Stimulus vs. Austerity
Low Interest Rates Driving Demand vs. Low Interest Causing Bubbles
Greater Productivity vs. Loss of Jobs in Manufacturing
Low Priced Energy vs. CO2 Induced Climate Change
Extractive Institutions vs. Inclusive Institutions
Competitive Markets vs. Judicious Regulation
Inequality vs. Incentives
Rich vs. Poor
etc...

4. All Economic Activity is Ultimately Devoted
to Two Things --

6. Of course, we must also be concerned with...
--- The distribution of income and wealth, and...

7. Of course, we must also be concerned with...
--- The distribution of income and wealth, and...
--- Equal opportunities for future generations, and...

8. Of course, we must also be concerned with...
--- The distribution of income and wealth, and...
--- Equal opportunities for future generations, and...
--- The judicious control of market externalities

9. Government Can Sometimes be Useful in Helping Us Accomplish These Goals

10. Government Can Sometimes be Useful in Helping Us Accomplish These Goals
That is,

11. Government Can Sometimes be Useful in Helping Us Accomplish These Goals
Helping to Control Externalities, Provide a System of Justice and Enforcement of Contracts, Supply Goods and Services that the Private Market Fails to Provide, Ensure a Reasonable Distribution of Income and Wealth, and Moderate the Business Cycle

13. Both C and L ultimately are related to y = output per population
U = utility C = consumption L = leisure
Both C and L ultimately are related to y = output per population

14. We Must Increase
y =
Steadily Over the Long Run

15. How Can We Increase (r1) (r2) and (r3) ?

16. Suppose we just want to increase (r1) which is

17. Child Labor – Not Really
Elderly Workers – Limited at Best

18. Foreign Workers – Maybe, but Problems, Problems
Robot Workers – Not for Many Years

19. No Matter What, (r1) has an Upper Limit
< 1

20. Okay …..suppose we try instead to increase (r2) which is

21. No Sleeping ----
No Eating ---

22. Just Work, Work, Work ---

23. No Matter What, (r2) has an Upper Limit
< 24 Hours/Day

24. In Fact…the Trend is for Less Hours Not More Hours of Work !

27. The Only Reliable, Long Run Way is to Increase
How Can We Increase y?
The Only Reliable, Long Run Way is to Increase
(r3) = Average Labor Productivity

29. Immediate Source: New York Times, April 2016 Link

30. How Do We Get High Growth in Labor Productivity?

31. How Do We Get High Growth in Labor Productivity?
Short Run – Moderate the Business Cycle, Get
the Economy Growing Again

32. How Do We Get High Growth in Labor Productivity?
Short Run – Moderate the Business Cycle, Get
the Economy Growing Again
Long Run – Encourage Saving and Investment

33. How Do We Get High Growth in Labor Productivity?
Short Run – Moderate the Business Cycle, Get
the Economy Growing Again
Long Run – Encourage Saving and Investment
Dilemma -- Are These Two Goals Compatible?

34. Besides More and Better Labor and Capital,
We can also Increase Output per Person with More Land and Raw Materials

35. Terracing Can Give Us More Land – But Ultimately Limited

36. Noordoostpolder, Netherlands
Parts of the Zuider Zee in the Netherlands as Reclaimed Land from the Ocean – Really Difficult and Costly
Noordoostpolder, Netherlands

37. Hong Kong Airport – Land Reclaimed from the Ocean

38. Not Land, but Space, Coupled with Physical Capital

39. Recycling Can Help Us Reduce Some Resource Problems

40. Renewable Energy Can Help a Little in Our Search for Energy

41. Naturally invention and innovation are important, but these are all just another way of saying that we need greater investment in research, development, motivation, education, marketing, production flows...investment will be best when government does not create large distortions, but encourages free trade, competition, and business becomes focused on providing a better product rather than getting a better deal from the government.

42. Ultimately, all our efforts will require saving as a temporary sacrifice -- in order to grow the economy. This is what we must prepare for and why the challenges we face are so daunting to a world that wants results NOW.

43. Basic Questions to be Discussed in Afternoon
Are Equity Markets around the World in a Bubble ?
2. What are the Global Demographic Trends and Why are they Important ?
3. Is Secular Stagnation the Cause of Low Growth and Low Inflation ?
4. Is Fiscal Austerity or More Stimulus the Best Policy for Governments Today ?
5. Why is Income Inequality Worsening throughout the World and is this Bad?
6. What is Globalization and How To Make It for Everyone ?

44. Thank You for Listening
Now, you have precious little time to prepare...so do your best for today...about 8 minutes for each group’s talk today...That’s about 4 slides and average of 2 minutes per slide... me your PPT at