Download Economic Growth

Economic Growth: The Solution to
Scarcity
Economics
Mr. Hellums
Economics for Leaders
Lesson Objective:
Analyze economic growth in
countries that protect private
property rights and encourage
voluntary trade.
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The Problem - Scarcity
Available resources are limited but
human wants are infinite
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Scarcity: Why Should We Care?
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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?
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Economic Growth
Definition: 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!
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Economic Growth
improves the lives of the poor by
making the pie bigger
Bigger “slices”
mean higher
standards of
living
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Population Growth and Important World Events
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~1750
Key to Growth = Productivity
Productivity: The output produced from a set of
resources in a period of time.
Direct sources of increased productivity:
 Technological change (new inventions)
 Better management of production (Henry Ford, J-I-T…)
 Skill and education (and learning by doing)
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The Story of Two
Canals
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Source: Wikimedia Commons
How could 101 mi. of Suez canal…
…do more for economic growth…
…than 1,104 mi. of the Grand canal?
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The Suez 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.
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The Grand 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?
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Role of the Government
Within an economy, government
institutions define the formal and
informal “rules of the game.”
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Role of the Government
These rules shape incentives and
define acceptable forms of behavior in
an economy.
“Incentives” are rewards or penalties
that influence people’s choices and
behavior.
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The poverty of some nations and the wealth
of others is not an accident; it is the result of
choices
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The World at Night
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Review
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.
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The Institutions that matter for
economic growth . . .
Open markets
Property rights
The rule of law
Entrepreneurship and innovation
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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
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
http://www.ggdc.net/maddison/
Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003 AD.“
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