1. Economics for Leaders World History Centuries –without productivity growth –without economic growth … without population growth

2. Economics for Leaders World Events & Population Growth ≈ 1750

3. Economics for Leaders World GDP per capita – last 2000 years Source: http://econ161.berkeley.edu/tceh/2000world_gdp/estimating_world_gdp.html http://econ161.berkeley.edu/tceh/2000world_gdp/estimating_world_gdp.html

4. Economics for Leaders Country150017001850190019501970198019902000 United States4005271,8064,0919,56115,03018,57723,20128,403 Canada4004301,3302,9117,29112,05016,17618,87222,366 France7279101,5972,8765,27111,66415,10618,09321,277 Japan5005706791,1801,9219,71413,42818,78921,051 United Kingdom7141,2502,3304,4926,93910,76712,93116,43020,159 Germany6889101,4282,9853,88110,83914,11415,92918,982 Italy1,100 1,3501,7853,5029,71913,14916,31318,786 Mexico425568 6741,3662,3654,3206,3206,0857,249 Brazil4004596866781,6723,0575,1984,9235,556 China600 5454487781,0611,8713,421 India550 5335996198689381,3091,885 Total Africa4144215006018901,3551,5381,4491,474 http://www.ggdc.net/maddison/ Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003 AD.“ Real GDP Per Capita Relatively poor Relatively rich (real = inflation-adjusted to 1990 dollars)

5. Economics for Leaders Country150017001850190019501970198019902000 United States4005271,8064,0919,56115,03018,57723,20128,403 Canada4004301,3302,9117,29112,05016,17618,87222,366 France7279101,5972,8765,27111,66415,10618,09321,277 Japan5005706791,1801,9219,71413,42818,78921,051 United Kingdom7141,2502,3304,4926,93910,76712,93116,43020,159 Germany6889101,4282,9853,88110,83914,11415,92918,982 Italy1,100 1,3501,7853,5029,71913,14916,31318,786 Mexico425568 6741,3662,3654,3206,3206,0857,249 Brazil4004596866781,6723,0575,1984,9235,556 China600 5454487781,0611,8713,421 India550 5335996198689381,3091,885 Total Africa4144215006018901,3551,5381,4491,474 Real GDP Per Capita Relative stagnation Economic take-off http://www.ggdc.net/maddison/ Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003 AD.“ (real = inflation-adjusted to 1990 dollars)

6. Economics for Leaders Country150017001850190019501970198019902000 United States4005271,8064,0919,56115,03018,57723,20128,403 Canada4004301,3302,9117,29112,05016,17618,87222,366 France7279101,5972,8765,27111,66415,10618,09321,277 Japan5005706791,1801,9219,71413,42818,78921,051 United Kingdom7141,2502,3304,4926,93910,76712,93116,43020,159 Germany6889101,4282,9853,88110,83914,11415,92918,982 Italy1,100 1,3501,7853,5029,71913,14916,31318,786 Mexico425568 6741,3662,3654,3206,3206,0857,249 Brazil4004596866781,6723,0575,1984,9235,556 China600 5454487781,0611,8713,421 India550 5335996198689381,3091,885 Total Africa4144215006018901,3551,5381,4491,474 Real GDP Per Capita Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003 AD.“ http://www.ggdc.net/maddison/ (real = inflation-adjusted to 1990 dollars)

7. Economics for Leaders Country150017001850190019501970198019902000 United States4005271,8064,0919,56115,03018,57723,20128,403 Canada4004301,3302,9117,29112,05016,17618,87222,366 France7279101,5972,8765,27111,66415,10618,09321,277 Japan5005706791,1801,9219,71413,42818,78921,051 United Kingdom7141,2502,3304,4926,93910,76712,93116,43020,159 Germany6889101,4282,9853,88110,83914,11415,92918,982 Italy1,100 1,3501,7853,5029,71913,14916,31318,786 Mexico425568 6741,3662,3654,3206,3206,0857,249 Brazil4004596866781,6723,0575,1984,9235,556 China600 5454487781,0611,8713,421 India550 5335996198689381,3091,885 Total Africa4144215006018901,3551,5381,4491,474 Real GDP Per Capita Progress 71 56 29 42 28 17 14 6 3 4 Source: GDP data from Angus Maddison, "Historical Statistics of the World Economy: 1-2003 AD.“ http://www.ggdc.net/maddison/ (real = inflation-adjusted to 1990 dollars)

8. Economics for Leaders The Mystery of Wealth Ample endowments of: –Energy –Timber –Fertile land –... help raise wealth BUT, they are … –only a small part of the answer to the Wealth of Nations

9. Economics for Leaders Why Capitalism Triumphs...... in the West and Fails Everywhere Else. Hernando DeSoto Peruvian economist Establish property rights –Can use ownership as collateral Can start businesses & participate in market economy http://www.youtube.com/watc h?v=JWakV0L8XWIhttp://www.youtube.com/watc h?v=JWakV0L8XWI http://www.youtube.com/watc h?v=xODUOlHJfhIhttp://www.youtube.com/watc h?v=xODUOlHJfhI

10. Economics for Leaders Investment Secure property rights make investment more likely. Property Rights allow people to obtain debt. –Use of past and future incomes. –Collateralization is of greatest benefit to the poor.

11. Economics for Leaders Investment and Growth

12. Economics for Leaders Without Sound Legal Institutions... Property Rights Hardly Exist

13. Economics for Leaders World Corruption Index

14. Economics for Leaders Do We Have a Summary Statistic …that –captures strength of private property rights? –the degree of open markets?

15. Economics for Leaders Economic Freedom of the World A weighted-index of variables to include: –Legal protection Corruption under control –Limited government Tax rates reasonable Tariff rates (taxes on imports) low Easy to start a new business Limited government control of prices

16. Economics for Leaders

17. Index of Economic Freedom Heritage Foundation – Wall Street Journal

18. Economics for Leaders World Corruption Index

19. Economics for Leaders 2011 GDP per capita

20. Economics for Leaders Capitalism, Growth & Poverty The extent to which these institutions are present is a measure of economic freedom or “capitalism” –So, strong property rights, rule of law, and open markets makes a nation “capitalist”

21. Economics for Leaders Capitalism supports and promotes both entrepreneurship and innovation –Which in turn promote economic growth –The result is higher standards of living at all points in the income distribution Capitalism, Growth & Poverty

22. Economics for Leaders Benefits of Economic Growth Raises standards of living by: –reducing infant mortality

23. Economics for Leaders 5/1000 Income Per Capita & Child Mortality 250/1000

24. Economics for Leaders Benefits of Economic Growth Raises standards of living by: –reducing infant mortality –increasing life expectancy

25. Economics for Leaders Income Per Capita & Life Expectancy

26. Economics for Leaders

27. Benefits of Economic Growth Raises standards of living by: –reducing infant mortality –increasing life expectancy –reducing child labor

28. Economics for Leaders Income Per Capita & Child Labor % 10 – 14 year olds active in economy

29. Economics for Leaders Benefits of Economic Growth Raises standards of living by: –reducing infant mortality –increasing life expectancy –reducing child labor –providing more education

30. Economics for Leaders Income Per Capita & Education Year: 2008 Country Education Index* Per capita GDP Country Education Index* Per capita GDP Australia0.99$35,677 South Africa0.83$3,975 Denmark0.99$36,604 Indonesia0.83$3,975 Finland0.99$35,426 Egypt0.73$5,416 New Zealand0.99$27,027 India0.64$2,972 Canada0.99$36,444 East Timor0.55 $801 South Korea0.99$27,939 Bangladesh0.52$1,334 Ireland0.99$44,195 Papua N. G.0.52$2,208 France0.98$34,045 Mozambique0.47 $897 Spain0.97$31,955 Gambia0.44$1,363 U.S.0.97$34,142 Ethiopia0.39 $868 U.K.0.96$35,445 Chad0.29$1,455 Japan0.95$34,099 Niger0.29 $684 *United Nations Education Index, 2008; World Bank GDP/capita (ppp), 2008.

31. Economics for Leaders Is Economic Growth Good for the Poor?

32. Economics for Leaders Who Are the Poor: Extreme Poverty World Bank’s Dollar-a-Day Line –Less than $1.25 per day –Purchasing power parity (ppp)

33. Economics for Leaders Extreme/Absolute Poverty $1.25 per Day Unthinkable poverty in U.S. terms –In U.S., 80-90% of poor (below US poverty line) Color television, Microwave, Cell phone Clean running water Extreme Poverty –Near 0% have above amenities Spend 73% of budget on food –over 50% of children malnourished

34. Economics for Leaders 1,290,000,000 Extreme Poverty World Bank About 22% of world’s population ( < $1.25/day )

35. Economics for Leaders Economic Terminology Absolute Poverty –measured against a designated minimum threshold of material well-being (a standard) current standard = $1.25/day PPP Relative Poverty –identified by comparing levels of material well- being experienced by different individuals or groups

36. Economics for Leaders Does Economic Growth...... improve the lives of the poor by making the pie bigger? Bigger “slice” means higher standard of living

37. Economics for Leaders Recent History Since 1750, world has made progress in battle against absolute poverty –experiencing a decline in the percentage of the population that is poor

38. Economics for Leaders % of World Population in Extreme Poverty

39. Economics for Leaders More Recent History But inroads against absolute poverty have been –especially noteworthy in last 25 years. For the first time in human history, the world is experiencing not only a decline in the: percentage of the population that is poor and in the total number of poor

40. Economics for Leaders Number of People in Extreme Poverty 1980

41. Economics for Leaders The Good News & The Bad News # People Living on < $1/day (millions) 1987199019982000 East Asia & Pacific 418472267261 Source: http://www.worldbank.org/poverty/data/trends/income.htm#table1 & Global Economic Prospects and the Developing Countries, 2005. http://siteresources.worldbank.org/INTGEP2005/Resources/GEP10705 3_Ch01.pdf http://www.worldbank.org/poverty/data/trends/income.htm#table1 http://siteresources.worldbank.org/INTGEP2005/Resources/GEP10705 3_Ch01.pdf 217227302323 Sub- Saharan Africa

42. Economics for Leaders Source: World Bank Poverty and Inequality Database http://databank.worldbank.org/Data/Views/Reports/TableView.aspx (April 30, 2012) http://databank.worldbank.org/Data/Views/Reports/TableView.aspx The Good News & the Bad News … The Good News & Some Encouraging News …

43. Economics for Leaders So... Does Economic Growth... improve the lives of the poor by making the pie bigger? Bigger “slice” means higher standard of living

44. Economics for Leaders Our inference? When the rich get richer.... The poor get richer too!

45. Economics for Leaders Economic Growth offers a way out! Annual Growth and Poverty Reduction Source: World Bank Poverty and Inequality Database http://databank.worldbank.org/Data/Views/Reports/TableView.aspx http://databank.worldbank.org/Data/Views/Reports/TableView.aspx

46. Economics for Leaders Sources: The World Bank Group. 2012. http://devdata.worldbank.org/data-query/ and CIA World Fact Book 2002. http://www.umsl.edu/services/govdocs/wofact2002/index.html (Data cited are most recent available as of 2012.)http://devdata.worldbank.org/data-query/ http://www.umsl.edu/services/govdocs/wofact2002/index.html Average Income Shares of Poor of Country’s Population (gross national income per person)

47. Economics for Leaders Economic Freedom and Income Level of Poorest 10% Source: EFW 2007, Exhibit 1.10.

48. Economics for Leaders Conclusion What is GDP? –Total market value of all final goods and services produced in economy in a year. What is best measure of nation’s standard of living? –GDP per capita

49. Economics for Leaders Conclusion How increase GDP per capita? –Increase GDP –Decrease population growth rate How increase in GDP? –Greater productivity

50. Economics for Leaders Conclusion How increase productivity? –Technical knowledge –Physical capital –Human capital How encourage physical & human capital, entrepreneurship, etc.? –Economic system & institutions supporting: Property rights Free and open markets

51. Economics for Leaders Conclusion Do all boats rise with economic growth? –Yes, all boats rise –But not likely at equal rates.

52. Economics for Leaders Monday Evening Session