Economics for Leaders Economics Mr. Hellums Economic Growth: The Solution to Scarcity.
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Transcript of Economics for Leaders Economics Mr. Hellums Economic Growth: The Solution to Scarcity.
Economics for Leaders
EconomicsMr. Hellums
Economic Growth: The Solution to Scarcity
Economics for Leaders
Lesson Objective:
Analyze economic growth in countries that protect private property rights and encourage
voluntary trade.
Economics for Leaders
The Problem - Scarcity
Available resources are limited but human wants are infinite
Economics for Leaders
Scarcity: Why Should We Scarcity: Why Should We Care?Care?
http://www.flatrock.org.nz/topics/odds_and_oddities/ultimate_in_unfair.htm
Economics for Leaders
Low, Middle, & High Income Nations
Why are some countries rich and others poor?
Can everybody be made better off?
Economics for Leaders
Economic GrowthDefinition: Economic growth increases Incomes (GDP per capita) —a bigger pie for everybody—even in the face of scarcity
Growth does not eliminate scarcity but makes some things 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!
Economics for Leaders
Economic Growth
improves the lives of the poor by making the pie bigger
Bigger “slices” mean higher
standards of living
Economics for Leaders
~1750
Population Growth and Important World Events
Economics for Leaders
Key to Growth = Productivity
Productivity: The output produced from a set of resources in a period of time.
Direct sources of increased productivity:Direct sources of increased productivity:Technological change (new inventions)Technological change (new inventions)Better management of production (Henry Ford, J-I-T…)Better management of production (Henry Ford, J-I-T…)Skill and education (and learning by doing)Skill and education (and learning by doing)
Economics for Leaders
The Story of Two Canals
Source: Wikimedia Commons
Economics for Leaders
How could 101 mi. of Suez canal…
…do more for economic growth…
…than 1,104 mi. of the Grand canal?
Economics for Leaders
The Suez Canal is an artificial sea-level waterway in Egypt, connecting the Mediterranean Sea and the Red Sea. – The Suez canal is 101 miles long – It saves ships thousands of miles of travel around Africa. – It was built by a private company—mainly funded by
French investors, it eventually made profits and encouraged trade.
Opened in November 1869, the canal had an immediate and dramatic effect on world trade. Combined with the transcontinental railroad in America completed six months earlier, it allowed the entire world to be circled in record time.
The Suez Canal
Economics for Leaders
Started in the 10th century, the Grand Canal of China is 1,104 miles long.Built by the Chinese government with a purpose to stifle sea-faring trade along the coast, which was banned from 15th century to the 19th century, and to aid armies with grain and material supplies.Even though the Grand Canal is an engineering marvel, in economic terms it is a depressing and destructive story. The Grand canal is a monument to bureaucratic cost and taxes. Why?
The Grand Canal
Economics for Leaders
Role of the GovernmentWithin an economy, government institutions define the formal and informal “rules of the game.”
Economics for Leaders
Role of the GovernmentThese rules shape incentives and define acceptable forms of behavior in an economy.“Incentives” are rewards or penalties that influence people’s choices and behavior.
Economics for Leaders
The poverty of some nations and the wealth of others is not an accident; it is the result
of choices
Economics for Leaders
The World at Night
Economics for Leaders
ReviewWhat 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.
Economics for Leaders
The Institutions that matter for economic growth . . .
Open marketsOpen markets
Property rightsProperty rights
The rule of lawThe rule of law
Entrepreneurship and innovationEntrepreneurship and innovation
Economics for Leaders
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 400 430 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 688 910 1,428 2,985 3,881 10,839 14,114 15,929 18,982
Italy 1,100 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 400 459 686 678 1,672 3,057 5,198 4,923 5,556
China 600 600 600 545 448 778 1,061 1,871 3,421
India 550 550 533 599 619 868 938 1,309 1,885
Total Africa 414 421 500 601 890 1,355 1,538 1,449 1,474
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.“