Economic Growth The Solution to Scarcity Economics Mr

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. Economics for Leaders

The Problem - Scarcity Available resources are limited but human wants are infinite Economics for Leaders

SCARCITY: WHY SHOULD WE CARE? Economics for Leaders 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? Economics for Leaders

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! 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

Population Growth and Important World Events Economics for Leaders ~1750

Key to Growth = 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) Economics for Leaders

The Story of Two Canals Economics for Leaders Source: Wikimedia Commons

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. Economics for Leaders

The Grand Canal Started in the 10 th 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 15 th century to the 19 th 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? Economics for Leaders

Role of the Government Within an economy, government institutions define the formal and informal “rules of the game. ” Economics for Leaders

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. 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

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. Economics for Leaders

THE INSTITUTIONS THAT MATTER FOR ECONOMIC GROWTH. . . Open markets Property rights The rule of law Entrepreneurship and innovation Economics for Leaders

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, 350 1, 785 3, 502 9, 719 13, 149 16, 313 18, 786 Mexico 425 568 674 1, 366 2, 365 4, 320 6, 085 7, 249 Brazil 400 459 686 678 1, 672 3, 057 5, 198 4, 923 5, 556 China 600 600 545 448 778 1, 061 1, 871 3, 421 India 550 533 599 619 868 938 1, 309 1, 885 Total Africa 414 421 500 601 890 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. “ Economics for Leaders