Economics for Leaders Economics Mr. Hellums Economic Growth: The Solution to Scarcity.

Economics for Leaders

EconomicsMr. Hellums

Economic Growth: The Solution to Scarcity


Lesson Objective:

Analyze economic growth in countries that protect private property rights and encourage

voluntary trade.


The Problem - Scarcity

Available resources are limited but human wants are infinite


Scarcity: Why Should We Scarcity: Why Should We Care?Care?

http://www.flatrock.org.nz/topics/odds_and_oddities/ultimate_in_unfair.htm


Low, Middle, & High Income Nations

Why are some countries rich and others poor?

Can everybody be made better off?


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!


Economic Growth

improves the lives of the poor by making the pie bigger

Bigger “slices” mean higher

standards of living


~1750

Population Growth and Important World Events


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)


The Story of Two Canals

Source: Wikimedia Commons


How could 101 mi. of Suez canal…

…do more for economic growth…

…than 1,104 mi. of the Grand canal?


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


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


Role of the GovernmentWithin an economy, government institutions define the formal and informal “rules of the game.”


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.


The poverty of some nations and the wealth of others is not an accident; it is the result

of choices


The World at Night


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.


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


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.“

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Use this table to pinpoint important institutional changes in several countries and talk about their economic experience:Italy from Middle Ages, Britain overtakes itChina prior to 1980 and since 1980Japan and Meiji and MacArthur

Economics for Leaders Economics Mr. Hellums Economic Growth: The Solution to Scarcity.

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