Transcript Introduction

Economics 175
American Economic History
Contact Information
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Email: [email protected]
Phone: 818-677-2462
Office: JH 3125
Office Hours: Tuesday and Thursday 1-2,
Thursday 6-7 and by appointment
Contact
• My website can be found through the Econ Dept
website under faculty.
• It has class syllabus , readings and other course
materials
• I will post any powerpoints of lectures used
• I will contact you by University Email
Class rules
• DO NOT DISRUPT THE CLASS IN ANY
WAY
– No Talking
– No Cell Phones
– Computers may be used only to look at class
material
– No Reading of Other Material
Suggestions for Success
• Read the syllabus, have it available at home
and school
• Attend class both physically and mentally
• Have a regular study schedule
• Do not take this class if you cannot come
every week.
Course Requirements
• Two Midterms
– Multiple choice and problems
– worth 100 points
• Paper
– Worth 25 points
• Comprehensive final
– Will be given only on date scheduled which is
December 9 at 8 pm
– Worth 200 points
Course Goals
At the end of the class students will:
• know significant events from US history from the
colonial period to World War II
• Understand their effect on US economic growth.
– Understand necessary economic concepts
• understand how political, social and geographic
factors contributed to these events the record of
US economic growth
What Is Economic History?
• “An attempt to explain the structure and
performance of an economy over time.”
(North, Structure and Change in Economic
History, p.3)
– Must be able to measure economic performance
over time
– Must be able to explain why it changes
Measurement Issues
• How do we decide whether the economy is
doing well or poorly?
• How big is the economy?
– Before WWII there were no statistics to
measure the size of the whole economy
• How well off are people?
– Income
– Health
– Happiness
Measurement Issues
• To judge whether the economy is doing
well or poorly, must have a measure of size.
• Must discuss these issues of measurement
before trying to explain growth.
Gross Domestic Product is the most
commonly used measure
• Gross domestic product (GDP) is a measure
of the income and expenditures of an
economy.
• It is the total market value of all final goods
and services produced within a country in a
given period of time.
• It is also a measure the total income of the
economy.
GDP
• GDP is the Market Value . . .”
– Output is valued at market prices.
– Cannot add eggs to cars to oranges directly
– We add Pe*Qe + Pc*Qc+Po*Qo
• GDP is a weighted average
– When prices are determined in markets they
reflect the value people place on them.
Measurement of GDP
• Of All Final . . .”
– It records only the value of final goods, not
intermediate goods (the value is counted only
once).
• If a baker buys flour, it is not part of GDP, the bread
produced from it is. If you buy flour in the
supermarket it is part of GDP.
– It is somewhat arbitrary
• Cars are classified as final goods even though most
use them to go to work
Measurement of GDP
• Goods and Services . . . “
– It includes both goods (food, clothing, cars)
and services (haircuts, doctor visits).
• Includes only those goods and services
produced in market
– Not those produced at home
• A women marries her gardener and GDP falls
– Not illegal
• Prostitution is part of GDP in Nevada, not CA
Measurement of GDP
• Produced . . .”
– It includes goods and services currently
produced, not transactions involving goods
produced in the past.
• Selling a used car does not change GNP
Measurement of GDP
• “ . . . Within a Country . . .”
– It measures the value of production within the
geographic confines of a country.
• GNP is a similar measure
– total value of all final goods and services
produced by a country’s citizens regardless of
where produced.
GDP Problems
• What would happen to GDP if number of
women in workforce increased?
– GDP would increase because jobs done outside
the home are counted as part of GDP while jobs
done in the home are not
• Would all the measured increase be real?
– No, jobs were done before, but done outside
the market
• This is important in many historical periods
GDP Problems
• What would happen to GDP, if marijuana
use was legalized?
– GDP would increase.
• Would all the measured increase be real?
– No, some marijuana was grown before but not
counted as part of GDP because it was illegal
• Can you think of a similar historical episode
when this would be important?
Data Problems
• Before WWII there were no statistics to
measure the size of the whole economy
• Now government collects data to calculate
it
• Past estimates are based on what ever data
was available
Standard of living
• How well off are individuals?
• Average income is hard to get data on
• Wages may be available for some workers,
not for those working on farms or self
employed
• No income tax until 1900s
GDP per Capita
• GDP per Capita is GDP per person
– GDP/population
– Measure of standard of living
• GDP and GDP per capita can be different
– China vs. Switzerland
• Data problems
Growth Rate of GDP
• How do you calculate growth rate?
• ((GDP2- GDP1)/ GDP1)*100
• Can you tell growth rate by looking at the slope of
the line on the previous graphs?
– No slope is the change in gdp, not the percentage
change
– If you graph the log of GDP, then the slope gives the
growth rate
The slope of the
graph is constant.
Growth rate of
GDP is average of
about 3%.
The exception is
period of Great
Depression.
Looks similar
to GDP.
Average growth
of per capita
income is about
1.5% per year.
Data Problems
• National Income Accounting does not exist
before 1930, so where do these numbers
come from?
• Estimated in various ways
• Earlier in time the worse the data is
• For the earlier period we will look at other
measures, like height by age, mortality
rates.
Figure 1.1 Univ. of Wisconsin
Starting Football Players’ Avg.
Weight
Figure 1.3 University of Wisconsin
Basketball Players’ Heights
Table 1.1 Life Expectancy by Age in
the United States
• These slides are consistent with the increase
in GDP per capita which we looked at
earlier.
What do the GDP, GDP per capita
statistics for the US tell us?
• US does not have a very high growth rate or either GDP or
GDP per capita
• With exception of the Great Depression, US growth has
been very constant.
• We will see when we discuss the colonial period that US
standard of living was comparable to European standard of
living from the beginning.
• The result is high GDP per capita relative to the
rest of the world.
GDP, Life Expectancy, and Literacy
Copyright©2004 South-Western
Why did US Economy grow?
• Lots of possible reasons
• We will use economics to answer the
questions
Economic thinking
• Five propositions
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Individual choices cause social outcomes
Choices impose costs
Incentives matter
Institutions (the rules of the game) matter.
Model based, not narrative based
• Theories evaluated on evidence
Property Rights
• Property rights refer to the ability of people
to exercise authority over the resources they
own.
– An economy-wide respect for property rights is
an important prerequisite for the price system to
work.
– It is necessary for investors to feel that their
investments are secure.
Big question
• Why does US economy have the set of
institutions that seem to promote growth?
• Why do these institutions change over time
and continue to promote growth?