Economics for Leaders Lesson 1: Scarcity & Economic Growth

Economics for Leaders Hypothesis for the Week: Human prosperity and social cooperation develop spontaneously in societies that protect private property rights and encourage voluntary trade.

Economics for Leaders Why Should We Care?

Economics for Leaders Low, Middle, & High Income Nations Why are some countries rich and others poor?

Economics for Leaders Why can’t we have all we want? Available resources are limited  Land (57,506,000 sq mi. & not even all habitable!)  Labor (7,1 bil. souls x 24 hrs a day)  Capital (less than ∞, trust me)  Entrepreneurship (not everybody is Jeff Bezos) Human desires are boundless What do we call this? SCARCITY!

Economics for Leaders But! Although we cannot have it all… …we still can have SOME of it. So: WWhat shall we have? HHow much of it? HHow shall we produce it? WWho will get it? Scarcity implies the need to make CHOICES!

Economics for Leaders Economic Reasoning Principle #1: People choose, and individual choices are the source of social outcomes. Scarcity necessitates choices: not all of our desires can be satisfied. People make these choices based on their perceptions of the expected costs and benefits of the alternatives.

Economics for Leaders Economic Growth Economic growth raises standards of living, even in the continuing face of scarcity Growth does not eliminate scarcity but may attenuate it (some things become 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 ~1750 Population Growth and Important World Events

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 Source:

Economics for Leaders Productivity The output produced from a given set of resources in a given period of time. Increasing productivity means that greater output is produced from a given set of resources in a given period of time. 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 A short account of the race in engineering prowess that occurred between Great Britain and France in the 18 th century 1730s 1760s 1780s Source: Wikimedia Commons

Economics for Leaders What is it that turns… …some technology into growth… …and another into a curiosity?

The story of two canals Source: Wikimedia Commons

Economics for Leaders How could 101 mi. of Suez canal… …do more for economic growth… …than 1114 mi. of the Grand canal?

INSTITUTIONS !!! the formal and informal “rules of the game” that shape incentives and outline expected and acceptable forms of behavior in social interaction. Incentives The reward or penalties that influence people’s choices and behavior.

Economics for Leaders Economic Reasoning Principle #1 Revisited: People choose, and individual choices are the source of social outcomes. Scarcity necessitates choices: not all of our desires can be satisfied. People make these choices based on their perceptions of the expected costs and expected benefits of the alternatives.

Economics for Leaders The Logic-of-Growth Cascade What is the best way to alleviate scarcity? Economic growth What is the source of economic growth? Increasing productivity How could productivity increase? TTechnological change IImproved management S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... are the institutions that shape the Incentives for choices about the uses of scarce resources.

Economics for Leaders Country United States ,8064,0919,56115,03018,57723,20128,403 Canada ,3302,9117,29112,05016,17618,87222,366 France ,5972,8765,27111,66415,10618,09321,277 Japan ,1801,9219,71413,42818,78921,051 United Kingdom7141,2502,3304,4926,93910,76712,93116,43020,159 Germany ,4282,9853,88110,83914,11415,92918,982 Italy1,100 1,3501,7853,5029,71913,14916,31318,786 Mexico ,3662,3654,3206,3206,0857,249 Brazil ,6723,0575,1984,9235,556 China ,0611,8713,421 India ,3091,885 Total Africa ,3551,5381,4491,474 World Per Capita REAL GDP: Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: AD.“

Economics for Leaders The “Big Ideas” from Lesson 1: 1.Scarcity forces us to choose among alternatives 2.Economic growth gives us more to choose from and raises standards of living by: – reducing infant mortality, – Increasing life expectancy, – reducing hunger, – improving environmental quality, and – reducing the incidence of debilitating diseases.

Economics for Leaders The “Big Ideas” from Lesson 1: 3.Some institutions and institutional arrangements encourage economic growth and some do not. 4.The institutions that foster growth and economic development include: Open markets Property rights and the rule of law Entrepreneurship and innovation

Economics for Leaders Questions: Why are some countries rich and others poor? Why have some countries experienced economic growth and others have not? (What factors lead to economic growth? Why are some countries growing rapidly today and others are not, even though they may have experienced significant growth in the past? What can be done to promote economic growth and reduce poverty? ? ? ?