Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
In what sense is Medellin "underdeveloped?"
U.S. States and Federal Government was clientelist1, no professional bureaucracy until the Pendelton Civil Service Reform Act of 1883
Cities governed by "political machines"
1 Also called "patronage" or "the spoils system".
George Washington Plunkitt
1842-1924
EVERYBODY is talkin' these days about Tammany men growin' rich on graft, but nobody thinks of drawin' the distinction between honest graft and dishonest graft. There's all the difference in the world between the two. Yes, many of our men have grown rich in politics. I have myself. I've made a big fortune out of the game, and I'm gettin' richer every day, but I've not gone in for dishonest graft—blackmailin' gamblers, saloonkeepers, disorderly people, etc.—and neither has any of the men who have made big fortunes in politics.
There's an honest graft, and I'm an example of how it works. I might sum up the whole thing by sayin': "I seen my opportunities and I took 'em."
Plunkitt of Tammany Hall, Ch. 1
These are characteristics of "normal countries"
Note: "normal" ≠ "good" or "just"!
Democratic, politically free countries with open access and low corruption are a very new thing historically!
Shleifer, Andrei and Daniel Treisman, 2005, "A Normal Country: Russia after Communism," Journal of Economic Perspectives 19(1): 151-174
Is a "developed country" politically developed?
What does that mean? Democracy?
Is democracy important for
If not (or not only) democracy, then what?
state capacity
Sources: Our World in Data: Democracy; Polity IV Data
Economic Freedom Score (2016) from Fraser Institute Data; Political Freedom Score from Freedom House Data
GDP per Capita (2018) from Gapminder; Political Freedom Score from Freedom House Data
Among the major things, macroeconomists care about:
Economic growth (rising GDP)
A large working population (low unemployment rate)
Stable purchasing power (low inflation rate)
The three most common macroeconomic measures of an economy's performance
Wealth (in)equality
Health outcomes
Life quality/satisfaction
Environmental quality
Political stability
Low corruption
Human and civil rights (especially for minority groups)
Y=C+I+G+NX
Gross National Income (GNI)1: market value of all final goods and services produced by resources owned by a country's citizens both at home and abroad
Comparing GDP to GNP shows how much a nation's citizens' wealth comes from domestic vs. international sources
1 This used to be called Gross National Product (GNP).
GDP per capita is a measure of income per person1: GDP per capita=Gross Domestic ProductPopulation
A better measure of how the "average" person is doing in a country
1 Capita means person.
The World Bank defines as of 1 July 2018 countries as being:
Income level | GNI per capita |
---|---|
High income | >12,055 |
Upper-middle income | 3,896−12,055 |
Middle income | 996−3,895 |
Low income | ≤995 |
To compare GDP across countries that use different currencies (e.g. Pounds, Euros, Yen, Yuan), we need a common denominator by using an exchange rate between currencies
Exchange Rates express the amount of one currency needed to convert to 1 unit of another
To compare GDP across countries that use different currencies (e.g. Pounds, Euros, Yen, Yuan), we need a common denominator by using an exchange rate between currencies
Exchange Rates express the amount of one currency needed to convert to 1 unit of another
Example: 0.88 EUR:1 USD0.78 GBP:1 USD1.30 CAD:1 USD
Other Country's GDP in USD=Other Country's GDP in Local CurrencyExchange Rate for 1 USD
Example: Great Britain's GDP in 2018 is £2.307 trillion GBP. One USD ($) exchanges for 0.88 pounds sterling (£). Calculate British GDP in US Dollars.
Britain's GDP in USD=£2.307 trillion£0.88/$1 =$2.622 trillion
e.g. whether you buy using Dollars in US or Euros in EU, you should get the same amount of goods on average
Example:
Suppose a sweater in the U.S. costs 50 USD.
Suppose the exchange rate is 100 YEN: 1 USD
Then the price of the same sweater in Japan should be 5000 YEN
Otherwise, an arbitrage opportunity!
Ah, but transaction costs!
Example: A haircut of similar quality in Norway is $65, $5 in Mexico, and $1 in India
Economists often use the Geary-Khamis dollar, aka the "international dollar" as the standard hypothetical unit
Again, main purpose is to make accurate comparisons of measures such as GDP per capita across countries
Several ways we can talk about how a measure changes over time, from time t1→t2
Difference (Δ): the difference between the value at time t1 and time t2 Δt=t2−t1
Several ways we can talk about how a measure changes over time, from time t1→t2
Difference (Δ): the difference between the value at time t1 and time t2 Δt=t2−t1
Relative Difference: the difference expressed in terms of the original value Δtt1=t2−t1t1
Several ways we can talk about how a measure changes over time, from time t1→t2
Difference (Δ): the difference between the value at time t1 and time t2 Δt=t2−t1
Relative Difference: the difference expressed in terms of the original value Δtt1=t2−t1t1
Percentage Change (Growth Rate): relative difference expressed as a percentage (± between 0 and 100%)
%Δ=Δtt1×100%=t2−t1t1×100%
Example: A country's GDP is $100 in 2017, and $120 in 2018. Calculate the country's GDP growth rate for 2018:
GDP Growth Rate2018=GDP2018−GDP2017GDP2017×100%=120−100100×100%=20100×100%=0.20×100%=20%
=72GDP Growth Rate
* Different people use other numbers, like 70. The point is more to make mental calculations easily rather than accurately.
Example:
Example:
If our economy is growing at 2% per year, the economy doubles in 722=36 years
If our economy is growing at 3% per year, the economy doubles in 723=24 years
Example:
If our economy is growing at 2% per year, the economy doubles in 722=36 years
If our economy is growing at 3% per year, the economy doubles in 723=24 years
If our economy is growing at 4% per year, the economy doubles in 724=18 years
Example:
If our economy is growing at 2% per year, the economy doubles in 722=36 years
If our economy is growing at 3% per year, the economy doubles in 723=24 years
If our economy is growing at 4% per year, the economy doubles in 724=18 years
If our economy is growing at 6% per year, the economy doubles in 726=12 years
Growth rates are unbelievably important!
It makes all the difference in the world if we grow at 2% vs. 3% per year
More importantly, growth compounds!
Example: Suppose 2 countries start with the same GDP of $1 Trillion
Country B grows at 4% per year
After 72 years:
GDP is a good but (like every other measure) an imperfect measure for social welfare and standard of living
Things NOT included in GDP:
GDP by definition cannot measure the shadow economy or the "informal sector"
A major component of developing countries' economies
Staggering numbers, % of recorded GDP:
Schneider, Friedrich and Dominik H. Enste, 2000, "Shadow Economies: Sizes, Causes, and Consequences," Journal of Economic Literature 37(1): 77-114
Don't just think crime, drugs, and human trafficking!
For various reasons, many citizens of many countries do not have access to legal markets for goods and services
Resort to informal economies and black markets to exchange goods and services
A typical grocery store in Vilnius, Soviet-controlled Lithuania, 1990
The list of scarce items is practically endless. They are not permanently out of stock, but their appearance is unpredictable...Leningrad can be overstocked with cross-country skis and yet go several months without soap for washing dishes. In the Armenian capital of Yerevan, I found an ample supply of accordians but local people complained that they had gone for weeks without ordinary kitchen spoons or tea samovars. I knew a Moscow family that spent a frantic month hunting for a child’s potty while radios were a glut on the market...
In an economy of chronic shortages and carefully parceled-out privileges, blat is an essential lubricant of life. The more rank and power one has, the more blat one normally has ... each has access to things or services that are hard to get and that other people want or need.
Consumers: The Art of Queuing, in The Russians
Smith, Hedrick, 1976, The Russians
Smith, Hedrick, 1976, The Russians
Again, GDP is a flawed measure
But remember, economists always ask, "compared to what?"
You will see later on that variation in GDP between countries and over time strongly explain variation in other measures we care about
In the last 20 years, the proportion of people living in extreme poverty has:
a) Almost doubled
b) Remained more or less the same
c) Almost halved
How many of the world’s 1-year-old children today have been vaccinated against some disease?
a) 80%
b) 50%
c) 20%
How did the number of deaths per year from natural disasters change over the last hundred years?
a) More than doubled
b) Remained more or less the same
c) Decreased to less than half
Where does the majority of the world population live?
a) Low income countries
b) Middle income countries
c) High income countries
Worldwide, 30 year old men have spent 10 years in school, on average. How many years have women of the same age spent in school?
a) 9 years
b) 6 years
c) 3 years
There are roughly seven billion people in the world today. Which map shows where people live? (Each figure represents 1 billion people.)
The United Nations predicts that by 2100 the world population will have increased by another 4 billion people. What is the main reason?
a) There will be more children (under age 15).
b) There will be more adults (15-75).
c) There will be more very old people (above age 75).
In low income countries across the world, how many girls finish primary school?
a) 20
b) 40
c) 60
How many people in the world have some access to electricity?
a) 20%
b) 50%
c) 80%
What is the life expectancy of the world population?
a) 50 years
b) 60 years
c) 70 years
Robert F. Kennedy
1925-1968
Yet the Gross National Product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry, of the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.
It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.
Amartya Sen
1933-
Economics Nobel 1998
Amartya Sen
1933-
Economics Nobel 1998
Insofar as development is concerned with the achievement of a better life, the focus of development analysis has to include the nature of the life that people succeed in living. This incorporates, of course, the length of the life itself, and thus life expectancy data have an immediate relevance to the living standard and through that to the concept of development...People value their ability to do certain things and to achieve certain types of beings (such as being well nourished, being free from avoidable morbidity, being able to move about as desired, and so on). These "doings" and "beings" may be generically called "functionings" of a person. (p15)
Sen, Amartya, 1998, "The Concept of Development," in H. Chenery and T. N. Srinivasan, eds., Handbook of Development Economics, Vol. 1, Elsevier Science Publishers.
Aristotle
384 BC-322 BC
The life of money-making is one undertaken under compulsion, and wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else.
Aristotle, Nicomachean Ethics
Adam Smith
1723-1790
[H]e begins at last to find that wealth and greatness are mere trinkets of frivolous utility...more troublesome to the person who carries them about with him than all the advantages they can afford him are commodious...The palaces, the gardens, the equipage, the retinue of the great, are objects of which the obvious conveniency strikes every body...He does not even imagine that [the rich and famous] are really happier than other people: but he imagines that they possess more means of happiness...In his heart he curses ambition, and vainly regrets the ease and the indolence of youth, pleasures which are fled for ever, and which he has foolishly sacrificed for what, when he has got it, can afford him no real satisfaction...Power and riches appear then to be, what they are, enormous and operose machines contrived to produce a few trifling conveniencies to the body...which must be kept in order with the most anxious attention, and which in spite of all our care are ready every moment to burst into pieces, and to crush in their ruins their unfortunate possessor. - Part IV, Chapter I
Amartya Sen
1933-
Economics Nobel 1998
Think about development in terms of "capabilities"
Central aspect of well-being is functioning: the freedom of choice and control over one's life
Positive freedoms, vs. negative freedoms
"We do not disagree with either Nussbaum or Sen on the shortcomings of the preoccupation with per capita GDP calculations. However, we believe there is a general pattern to be found between the adoption of the institutions that promote the wealth of a nation and the health and well-being of its people. In other words, life expectancy, infant mortality, educational opportunities, and health outcomes are well correlated with GDP" (p.110).
Boettke, Peter J and J Robert Subrick, 2003, "Rule of Law, Development, and Human Capabilities," Supreme Court Economic Review 10: 109-126
"Our first conjecture is that the rule of law is a significant factor in explaining economic development. This is hardly controversial...Our second conjecture is that economic development is a significant factor in determining increases in what Sen entitles human capabilities... (p.111).
"In short, we expect that the rule of law will increase the level of de- velopment, and the level of development will lead to improvements in human capabilities. That is, the rule of law is an institutional fea- ture that promotes economic development that, in turn, leads to in- creases in those capabilities that Nussbaum and Sen argue are neces- sary for living a human life. Economic development, in short, provides the material pre-requisites that enable human flourishing," (p.112).
Boettke, Peter J and J Robert Subrick, 2003, "Rule of Law, Development, and Human Capabilities," Supreme Court Economic Review 10: 109-126
p. 122
Gordon's proposed poverty threshold is defined as 2 or more deprivations of:
Economists often describe a tradeoff between efficiency and equity in terms of the "economic pie"
Efficiency: efforts to grow the pie
Equity: efforts to divide the pie fairly
Economists tend (not exclusively!) to favor efficiency over equity
Source: Our World in Data: Income Inequality
William Easterly
1957-
"The majority of the world’s people live in poor nations where women are oppressed, far too many babies die, and far too many people don’t have enough to eat. We care about economic growth for the poor nations because it makes the lives of poor people like those in Gulvera better. Economic growth frees the poor from hunger and disease. Economy-wide GDP growth per capita translates into rising incomes for the poorest of the poor, lifting them out of poverty," (p.8)
William Easterly
1957-
"The typical rate of infant mortality in the richest fifth of countries is 4 out of every 1,000 births; in the poorest fifth of countries, it is 200 out of every 1,000 births. Parents in the poorest countries are fifty times more likely than in the richest countries to know grief rather than joy from the birth of a child. Researchers have found that a 10 percent decrease in income is associated with about a 6 percent higher infant mortality rate.," (p.9)
"The deaths of about half a million children in 1990 would have been averted if Africa’s growth in the 1980s had been 1.5 percentage points higher," (p.10)
William Easterly
1957-
"The improvement in hunger, mortality, and poverty as GDP per capita rises over time motivates us on our quest for growth. Poverty is not just low GDP; it is dying babies, starving children, and oppression of women and the downtrodden. The well-being of the next generation in poor countries depends on whether our quest to make poor countries rich is successful," (pp.14-15)
Keyboard shortcuts
↑, ←, Pg Up, k | Go to previous slide |
↓, →, Pg Dn, Space, j | Go to next slide |
Home | Go to first slide |
End | Go to last slide |
Number + Return | Go to specific slide |
b / m / f | Toggle blackout / mirrored / fullscreen mode |
c | Clone slideshow |
p | Toggle presenter mode |
t | Restart the presentation timer |
?, h | Toggle this help |
Esc | Back to slideshow |