Posts from — February 2007

with E.J. Nell

Abstract. We build a transformational growth model of non-linearly interacting markets, each of which endogenously generates log-normal or Pareto-distributed unequal societies as time evolves. If inequality is generated by the Market (with a capital “M”), then ‘class’ is just the name you give to a socially generated partition of certain collections of certain bins in the histogram of overall earnings at some period of time. We know that the histogram of income at a given period of time is highly skewed is developed countries (See Drăgulescu and Yakovenko, 2001, pg. 585, for examples).  In this study, we aver that markets do not exist primarily to allocate resources efficiently–––Markets represent the ebb and flow of goods and services to winners and losers over time. Through competition in all its forms, markets generate surpluses that go to the successful, who carry these gains forward through time and use them to their own advantage. These knock-on effects alter the distribution of wealth in the system, especially when we take account of the presence of inter-sectoral feedbacks. Trading behaviour makes markets unstable because of the ever-present cost pressures from competing economic entities, which,  although richer traders are partially insulated  from these cost problems in the short run, will affect all members of the sector eventually.

This model captures several stylized facts of the real economy.

1. Economic agents are differently abled, for many reasons. It is natural to model this difference as differences in natural ability, access to resources, and opportunities. A good example might be the naturally gifted child from who can go to a private school because of their parents’ wealth and who is accepted for a scholarship to a prestigious university, who sells their labour for a higher amount than others in the labour market and so ‘wins’ in our schema.

2. Wealth, in the form of claims to units of a homogenous capital good, is transferred from agent to agent in a bidding process.

3. Those agents that do not find jobs in the labour market do not die: a ‘dole’ is provided for them by a government, allowing them to survive until the next period. This creates the ‘tail’ of the distribution we see in empirical studies of income distribution (Yakovenko et al, 2004, Sinha, 2005) across both developed and undeveloped countries.

4. Gains made in the labour market and gains made in the capital market affect the individuals inside the model very differently.

5. We see persistent dispersion of income across income bins.

[Download the Paper]

labourmarket-2.nb

Paper Presented at the 2007 Eastern Economics Association Conference. We thank Matt Hart, Jason Barr, Mauro Gallagatti and Troy Tasier for helpful comments on an earlier draft.

Most imperative of recent missives was a letter from Forbes, reminding us that we are not a bluebird. “You are not a bluebird,” the letter said, gruffly, and then added, “you are a business man.” There was a kind of finality about the news, and we read on. “Business is a hard, cold-blooded game today. Survival of the fittest. Dog eat dog. Produce or get out. A hundred men are after your job.” If Forbes only knew it, goading of the sort is the wrong treatment for us. We are not, as they say, a bluebird. Nobody who reads the nation regularly, as we do, can retain his amateur bluebird standing. As for business, we agree that it is hard, cold-blooded game. Survival of the fittest. Dog eat dog. The fact that about eighty-five per cent of the dogs have recently been eaten by other dogs perhaps explains what long ago we noticed about business: that it had a strong smell of boloney. If dog continues to eat dog, there will only be one dog left, and he will be sick to his stomach.

E.B. White, “Dog Eat Dog”, The New Yorker, 4/1/1933.

Right click to download the lecture notes

EC6012_Lecture2_Review.pdf

Aggregate Supply and Demand

Download the slides here: asad.ppt

Or, watch them here:

Q1: Does a macroeconomic equilibrium exist?

Q2: If the answer to Q1 is true, then will this equilbrium generate full employment?

We’ve already talked about measuring total output, so revise your notes on GDP, GNI, etc.

Aggregate Supply:

The total supply of goods and services produced in the economy in a given period

AS = (net output per hour)*(total hours of employment) = yN

Aggregate Demand

AD is the total demand for goods and services in an economy in a given period.

AD = C+I

C = cwN

AD= C+I- cwN+I

Total Saving = wages saved + all profit income

= Nc(1-c)+N(y-w)

= Nw-Nwc+Ny-Nw

=Ny-Nwc

Market Clearing

AS = yN=cwN+I = AD

Unemployment and Government Fiscal Policy

AD = C+ I + B = cwN + I + B

AS = yN = cwN + I + B = AD

yN- cwN = I + B

N(y-cw) = I+B

so

N* = (I+B)/(y-cw)

this is the equation for the equilibrium level of employment when AS=AD in the product market.

Reading for this lecture: Bowles et al, pgs 445–476

Unemployment: the persistent macro economic problem. Why does unemployment exist? Why does it still exist?

More stylised facts:

1. High employment sustained over a few years will reduce profits. This is called the high-employment squeeze.

2. The availability of imports for an country’s goods place additional limits on the effectiveness of macro policies aimed at high employment.

3. Monetary policy and fiscal policy approaches to job creation are both effective and in different ways, and they may work at cross purposes.

4. Sustained high employment levels are possible, but we have to change the policy mix as we move through the business cycle.

Wage Push in Ireland

Materials Cost Push

> Housing CPI Cost push

Unit Cost, Output and the Profit Rate

(a bad reproduction of figure 17.4, pg. 456)

Exports and Imports: the Irish experience.

These figures come from the Stability Programme Update for 2006. The data methodology is in there, but basically:

The output gap figures are used to calculate the Cyclically Adjusted Budgetary Balance (CABB), which is used to assess the ‘close to balance’ budgetary requirement.

Which is a much better explanation than I could give.



                                    2004    2005    2006    2007    2008

Real GDP Growth          4.5        4.6        4.8        5.0        4.8

Potential GDP Growth    5.8        6.1        5.5        5.3        4.8

Output GAP                  0.1        -1.3      -2.0      -2.3      -2.3

And here you can download the spreadsheet I used to make the graphs.

OutputGap.xls

Keynes, John Maynard The General Theory of Employment, Interest and Money,  Chapters 6  & 7 (links to full text)

(Write a 1 page summary of each of these chapters as an exercise, post the essays on your blogs by Tuesday March 5, 12:00 pm.)

Update: Links working now. Thanks to Jason, Liu, Shane, Catherine and Barry for noticing the 404.

First, we’ll need some data to work with. We live in Ireland, so let’s look at Irish National Income Accounts.

First, Irish National Income. Second, Expenditure on Gross National Income at Current market Prices.

If you missed the lecture, hopefully your mates kept you a handout. If not, email me and make something up and I’ll email it to you.

Now first, we’ll graph the changes in consumption, investment, etc that are shown in these accounts.

Then we’ll go through a review of some basic international macro stuff, and work back up to a PBL exercise in class. So this lecture will be a hybrid: part one is a traditional chalk and talk, bash you over the head with information-type lecture, the second half is a PBL exercise.

[Read more →]

Start here with 10 web applications to help you study.

I’ve been arseing around for an hour now on this website. I think I’ll stick with this theme. Any thoughts? Prefer the space-age one or the plain text version?

Lecture 3. Aggregate Demand and The Surplus Approach to Economics.

Reading: Bowles et al Chapter 16 pp 403—444

Watch the slideshow:

Download the Handout: MDU_macro_lecture3_handout.pdf

Today:

1                  Why are there unemployed resources in the economy?

2                  Introduction to business cycles

3                  Aggregate Supply and Demand

4                  Unemployment

5                  Income, Consumption, and Saving

6                  Unemployment and Government Fiscal Policy

7                  The Multiplier

8                  Yet another set of Stylised Facts

1.                Why are there unemployed resources in the economy?

The Great Depression really is the starting point for our analysis of aggregate demand and the stimulation of economic activity through fiscal policy. Read about it here. http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html.

The resources used in production are Land, Labour, Capital and Enterprise. At any moment, some of these resources are either not being used in their most efficient way (Ph.Ds sweeping streets) or not being used at all (Ph.Ds on the dole). Why, in an era of very tightly integrated capital markets globally and quite tightly integrated labour markets at least in some parts of the world, do unemployed resources exist? This is the subject of this lecture.

In the output lost in 2001 in the US economy, Bowles et al (pg 403) suggest that had the manufacturing resources of the US economy been fully utilised, an extra $1.2 trillion worth of good would have been produced. The output gap for Ireland from 1970–2005 is shown below

The figure below shows Ireland’s percentage deviation from it’s potential GDP from 1970 to 2005 compared with the USA (data for this figure came from http://www.imf.org/external/pubs/ft/weo/2000/02/data/ngap.csv).



What we see is striking. First, there is no discernible pattern to the individual fluctuations, though Ireland and the USA do track one another’s highs and lows, albeit in a lagged way. Second, the magnitude of each change is different for each country. This means each country experiences macroeconomic shocks differently. The canonical example is the http://en.wikipedia.org/wiki/1973_oil_crisis of the early 1970’s. Look at the graph for this period. What do we see? The countries experience an overall steep drop in deviations from potential, with Ireland experiencing a worse decrease than the USA. Third, in terms of the future from 2005, if you were to put a bet on, where would you say that line will go? Would you be confident about that assertion?

2. Introduction to Business Cycles.

Let’s look again at the Great Depression’s effect on output in the G7 (i.e. the richest) countries.

Here we can see a massive drop in output caused by a series of macro shocks.

First, let’s dispel a common misunderstanding. There are no such thing as business cycles. The word ‘cycle’ implies if you take a point on the graph of GDP against time, this point will reappear with the same frequency and amplitude a bit down the time line. This is of course not the case. If it were, and the economy did move in waves, then counteracting the effects of these waves would be simple: we would simply adjust our expectations, and hence our spending and saving patterns, to match the ebb and flow of that wave, were it so regular. No, there is no ‘cycle’ here, only fluctuations in output plus noise.

Actual vs. potential GDP here. This has implications for policy, depending on where we are in the business cycle.

Where do you think we are now?

3                  Aggregate Supply and Demand

Aggregate Demand is defined as the total demand for goods and services in the economy during a specific time period. It is often called effective demand. Find out more about the definition here.

Aggregate Supply is defined as the total supply of goods and services by a national economy during a specific time period. Find out more about the definition here.

4                  Unemployment

Unemployment refers to the numbers of workers actively seeking work but who cannot find work. The actual number of unemployed workers in Ireland is given by the Central Statistics Office, available here. Ireland hasn’t had a serious short term or long term (+12 months) unemployment problem in a long time, as we can see from the graphs below.

8    Growth Stylised Facts

From Kaldor, Kuznets, Romer, Lucas, Barro, Mankiw-Romer-Weil, and others.

1. In the short run, important fluctuations: output, employment, investment, and consumption vary across booms and recessions.

2. In the long run, so goes the story, we should see balanced growth: output per worker (Y/N) and capital per worker (K/L) grow at roughly constant rates (there is considerable disagreement about this statement, however). The return to capital (r), is roughly constant, though the real wage rate (w) can grow at the same rates as output. And the income shares of labour and capital (wL/Y and rK/Y) stay roughly constant.

3. Substantial cross-country differences in both income levels and growth rates.

4. Persistent differences versus conditional convergence.

5. Formal education. Highly correlated with high levels of income (obviously two-directional causality here); together with differences in saving rates can “explain” a fraction of the cross-country differences in output; this is an important predictor of high growth performance.

6. R&D and IT: These are the most powerful engines of growth (but obviously we’ll require more basic skills and education to take advantage of these first);

7. Government Policies: Taxation, infrastructure, inflation, law enforcement, property rights and corruption and important determinants of growth performance.

8. Democracy. An inverted U-shaped relation.

9. Openness. International trade and financial integration can promote growth.

10. Inequality. The Kuznet’s curve, an inverted U-shaped relation between income inequality and GDP per capita

11. Financial Markets and Risk Sharing.

12. Fertility. Higher fertility rates are correlated with lower levels of income and lower levels of economic growth. The Malthus curve, the Lewis model.

13. Structural transformation really mattes. This is the Theory of Transformational Growth.

14. Urbanisation over the long stretch of history really matters.

15. Institutional and social factors, e.g. Ireland’s history as a colony, existing social norms, etc.

I’ve ordered 5 copies of our textbook, Godley (2006), for the library, and 10 for the bookshop. If you’d like to subvert that whole middleman/sharing thing, then go here.

Here are the International Monetary Economics Blogs set up for EC6012.

Group 1

Group 2

Group 3

Group 4

Group 5

Group 6

International Monetary Economics will be taught through PBL, problem-based learning.

If you want to read more about PBL, download this.

Some sites offering information on PBL: here, here, and here.

Our Class is broken into groups.

Groups set their own ground rules; there are informal group evaluations. We will have formal group evaluations (after the first project, and the end).

Roles

In your groups and amongst yourselves, decide on the following roles for the group.

Recorder writes down group’s priority and learning issues, keeps their ‘notebook’ including each successive draft.

Reporter offer’s the group’s contribution to the whole class, hands in group’s assignment.

Each of these functions rotates amongst the members of the group as we cycle through assignments.

It thus makes sense for the Reporter and/or Recorder to bring their laptop(s) to the class.

The Ethiopian government arrested Dr. Berhanu Nega and six other leaders of the Ethiopian political opposition (CUD) after a protest over election irregularities on 1 November, 2005 in which 46 people were killed, and hundreds were wounded. Dr. Nega and his colleagues are being held on charges of treason, which is punishable by death under Ethiopian law. Amnesty International regards them as “Prisoners of conscience, arrested solely for the non-violent expression of their political beliefs.”

Dr. Nega received his Ph.D, from The New School for Social Research in 1991. He is a leading member of the CUD, Ethiopia’s main opposition party. He is Mayor of Addis Ababa, has served as president of the Ethiopian Economic Association, founded the Ethiopian Economic Policy Research Institute, and served as a consultant for the UN Economic Commission for Africa.

He is part of a group trying to bring democracy to his country. We are trying to help him do just that by becoming free again.

Interested readers should go  to www.freenega.org or www.savenega.net to find out how they can help.

Dr. Nega is a remarkable man. Once he had finished his Ph.D in the US, he could have stayed in America and lead the quiet life of a professor. But he went home to try to make a difference to his country, and now he has spent over a year in jail for his trouble. He has endured hungers strikes and heart complications, and still actively fighting the repressive Ethiopian regime, albeit from a cell. His human rights are being violated as I write this.

I’ve been involved with this campaign since it started (the New School is where I did my degree) in 2005. It’s sad Dr. Nega is still incarcerated, but now there are a few things you can do, if you like:

Sign the Online Petition



Write a letter to Condolezza Rice

EC6012 Course Outline

Right Click the link below and choose ’save target as’ to download the course outline.

[Kinsella_EC6012_CourseOutline_2.pdf]

Introduction

Monetary economics concerns the relationship between real and nominal variables. International monetary economics considers these relationships in the context of an open economy. The aim of this course is to develop simple models to evaluate the effects of policies on inflation, employment, real interest rates, and production.

Learning Outcomes

At the end of this course, students should be able to

• describe the development of major international institutions like the World Bank, the IMF, and the EU;
• give a brief account of some simple stock-flow consistent models used in evaluating monetary policy;
• describe the evolution of the neoclassical and structuralist macroeconomic modelling paradigms since Keynes’ death.

Lecturer Contact Details

My office is AM068a, office hours are 12–1pm on Tuesdays or by appointment. Contact me by email at stephen.kinsella@ul.ie.

Textbook



Students are urged to buy Goldey and Lavoie’s Monetary Economics An Integrated Approach to Credit, Money, Income, Production and Wealth, Palgrave-Macmillan, 2006.

I also recommend you buy Taylor, Restructuring Macroeconomics.

Basic reading for the first two lectures will be taken from Leddin and Walsh’s Macroeconomy of the Eurozone, or in the library at 339.09417/LED

Assessment

Assessment will consist of an end of term exam worth 50\% and a group presentation worth 30\% and 2 or 3 exercises worth 20\%. A sample exam will be distributed in week 6 of term. The exam is an essential part of the assessment, and each part of the course assessment must be passed.

The presentation will be on one of the models taught in the class: the group will be expected to present the fundamentals of the model to the class. Marks will be given for accuracy of material, structure of presentation, relevance of material, use of graphic displays and general preparedness. Written feedback will be given.

Lecture Outline & Layout

Lectures are 2 hours long, from 10am to 12pm in S114 in the Schuman building and participatory. This is a Master’s class, so students are expected to have read the lecture material before the lecture. Slides used during the lectures will be provided during the lectures and online at stephenkinsella.net. There will also be a podcast of the lecture available afterward on the site.

The layout for the course is as follows

Review of intermediate open economy macroeconomics Primitive concepts review. AS-AD, Balance of Payments, Circular Flow models in open  economies. `Money’ measurement and definition. Macroeconomic objectives, The money concept its origin, definition and current role; different types of money â commodity money, fiat money, etc; Measuring the money supply M0, M1, M2, etc

; Money supply counterparts, the causes of money supply changes ;The demand for money and its determinants ;The repo rate and its impact on the economy; The role of all the other interest rates in the economy; The monetary transmission mechanism; How the Reserve Bank conducts monetary policy; The reason for having inflation targets. [Two lectures, Reading: Chapters 2 and 3, Leddin & Walsh, 2003

A Simple Stock-Flow Social Accounting model  Introduction to Social Accounting Matrices, stock-flow accounting, simple transmission mechanisms for growth, and  [Three lectures], Reading: Chapter, Godley, 2006, Chapter 1, Taylor, 2004.

Balance Sheets, Transactions Matrices, and the Monetary Circuit Establishing the technical apparatus of the structuralist approach. [Three Lectures] Reading: Chapter 2 Godley, 2006

A very simple Model with Government Money Government and private money and a service economy [Two lectures] Reading:  Chapter 3 Godley, 2006

Government Money with Portfolio Choice The PC Model simulated and derived for the class.[Two lectures] Reading:  Chapter 4 Godley:2006

Presentations

Presentations will be made on the following papers in the following areas. All papers are available at http://www.stephenkinsella.net/?p=148. We’ll set a timetable for presentations in the first lecture.

Presentation 1 Robert Mundell,  The Pure Theory of International Trade.

Presentation 2 Lloyd A. Metzler Tariffs, the Terms of Trade, and the Distribution of National Income

Presentation 3 Harry G. Johnson  The Transfer Problem and Exchange Stability

Presentation 4 Gottfried Haberler \emph{Some Problems in the Pure Theory of International Trade

Presentation 5 H. W. Singer, The Distribution of Gains between Investing and Borrowing Countries

EC6012 Setting up Group Blogs

Here is the procedure for setting up your blog.

1. Go to Blogger.com.

2. Set up the blog in 3 steps. This is free.

3. Email me the link to the blog.

4. Post your group homework on the blog.

EC6012 International Monetary Economics Lecture 1



Right click the link below to download the handout:

[Download EC6012_Lecture1.pdf]

Mathematics in Macroeconomics

Mathematical formalism is only useful when

1. it tests internal consistency between different propositions within a theory (e.g. the proposition that different markets clear simultaneously);

2. it clarifies what ‘drives’ the restuls (e.g, given the minimal assumptions under which it will be true that more exports can be achieved at the cost of a worsening distribution of income), and;

3. It provides a solid base for empirical analysis.

Important characteristics of structuralist models

1. differences in behaviour of different income groups matter

2. differences in available technologies in different sectors or countries matter.

3. structuralist models are based on the social relations between broad groups of economic actors

Intellectual Foundations

Keynes Kalecki,  Ricardo, Marx

=> Fundamental assumption: the economy’s institutions and social groups play causal roles in determining overall behaviour of the economy.

Theoretical Foundations

Richard Stone

Wynne Godley

Lance Taylor

Accounting Relationships between macroeconomic fundamentals

Problems

>Politics

Market-balance relationships constrain economic actors in important ways.

All the models you will see in this course are constructed directly from aggregates like household consumption, business investment, etc.

Stocks v Flows

flows (GDP is the sum of payments to labour, payments for ’surplus’ (profits) and payments for indirect taxes)

stocks (cumulative flow: the country’s net foreign asset position is the sum over time of its current account surpluses.)

All the models you’ll see in this class will be stock-flow consistent.

Causality

Structural Macreconomics Problems

1. Inequality and Poverty

Keynes, John Maynard KeynesThe General Theory of Employment, Interest and Money,  Chapters 6  & 7 (link to full text)

(Write a 1 page summary of each of these chapters as an exercise)

2. Inflation and Macro Stability

G. Calvo, L. Leiderman and C. Reinhart, Inflows of capital to developing countries in the 1990s, Journal of Economic Perspectives 10, n. 2 (1996),

Knut Wicksell, 1906, The Influence of the Rate of Interest on Prices,

3. Policy Instability

Prospects and Policies for the U.S. Economy. Why Net Exports Must Now Be the Motor for U.S. Growth  Wynne Godley, Alex Izurieta and Gennaro Zezza,

Methodology

1. Present a series of models, starting very simply, and gradually including all the real-world complications.

2. Write down a system of equations and accounting identities, attribute initial values to all stocks and all flows and to behavioural parameters

3. We’ll use stylised facts for most of these.

4. Then use numerical simulation to check the accounting and find the steady state of the economy

5. finally, we shock the system with varying assumptions to check robustness.

=> This gives us an ‘informed intuition‘ about the real world.

Notes for MDU Macroeconomics Lectures

Lecture 1 Inequality

Read before the lecture: Bowles et al: Chapter 14, The Mosaic of Inequality, pg. 343–374

Plan for today:

• Defining inequality
• Classes
• Stylised facts
• Measuring Well-being and Inequality
• GDP
• Gini
• Unequal Chances

[Read more →]

Plan for today:

• Are we rich because they are poor?
• Does income distribution really matter?
• Some more stylised facts
• Poverty and progress: some international comparisons
• The Income distribution of the world over time.
• Productivity, surplus, and incentives.
• Download the lecture slide here by right clicking and choosing save target as:

Download MDU_macro_lecture2_pandpoverty-1.pdf

Update 07.02.07: I’ve checked all the links, and they should all work now. Email me if they don’t.

1 Are we rich because they are poor?

First, look at the gapminder progress and poverty presentation. The presentation is very nicely put together, and points out several stylised facts Bowles et al go through, starting on page 377:

2. Some More Stylised Facts

1. Around the world, living standards vary dramatically.

2. Culture and natural resources aside, one prominent difference between nations that succeed and those that do not is the composition and efficacy of their institutions governing competition in particular and the economy in generalNations that started the process of industrialisation (the UK, France, etc) had a distinct advantage over late comers. This is extremely well put in Lucas, 2000, Some Macroeconomics for the 21st Century, (you need to be on campus to read this link) which we’ll go through in class later.

3. Improvements in living standards are dependent on distribution of the surplus product which is produced by the combination of labour, capital goods, knowledge and improving technology. In the poor countries of the world, rapid technological progress can be achieved by adopting newer technologies.

4. Capitalism is an economic system that provides strong incentives to accumulate capital (duh) which is used to produce increases in the output of goods and services. The adoption of capitalism does not guarantee success, however.

5. Where the government plays an active role is supporting the economy’s growth, the country will, generally speaking, be better off.

6. International investment, which is the diversion of the surplus product from one country to another, can help make countries richer through these transfers.

3. Does income distribution really matter?

Well, lots of people seem to think so. There are two sides of the argument. One side says that income distribution doesn’t really matter in the broad sense of the word ‘matter’. Of course individuals experiencing the income differential are going to feel it matters, but at a societal level the existence of haves and have-nots is really not a cause for concern, one side maintains, because some people work harder, use their innate talents more effectively, are luckier, and so forth. For representative accounts of the latest developments in each position, click here and here. Piketty-Saez is the latest academic contribution from the data side of this argument.

The other side maintains that inequality is a social ill that needs to be curbed through progressive government policies like social insurance and other transfers to Have-nots from Haves. The argument is very well explained here. There are ample we resources on the debate on inequality in the links I’ve mentioned already if you want to get more into this area.

There are some really shocking numbers out there, for instance we have

The figure is one such measure of inequality - the ratio of the wealth of the richest 1% to that of a household with typical wealth in the middle. As the figure indicates, wealth inequality has not only persisted, but also grown much larger over time. The richest 1% of wealth holders had 125 times the wealth of the typical household in 1962; by 2004 they had 190 times as much or $14.8 million in wealth for the upper 1% compared to just $82,000 for the household in the middle fifth of wealth. (via)

4. Poverty and progress: some international comparisons



Ok, we’ll talk in class just how difficult a concept ‘poverty’ is to define. Check this list out for a subtle entrance to the debate on poverty and progress.

Given that poverty is such a badly defined concept (from a measurement point of view) we need to look at many different measures of this phenomenon to get an idea of what it means:

1. Global health inequalities: an international comparison, British Medical Journal

2. Water Poverty globally, (see pg. 15)

3. The World Bank development indicators, 2006, focus on income;

4. Total Fertility Rates by region, Table 2a here;

5. The Demographic Divide: Insert table 2j here;

6. Pages 379, 380, 381, 382 in Bowles et al.

We could, of course, go on ad infinitum. This is just a taster of the type of differences that exist in these areas.

5. The Income distribution of the world over time.

See http://www.gapminder.org/, focus on Income Distribution changes over time up to 2005.

6. Productivity, surplus, and incentives.

Ok, we’ve seen enough data to choke a small pony. Now let’s look at some economic explanations for the differences in incomes, wealth, etc.

First, let’s get a question in our heads we should try to be answering all the time:

Why have some countries done so well in terms of economic progress, while others have not?

We need a theoretical framework to help answer this questions. But first, a quick overview of theories of growth and distribution: Inequality and Economic Performance,  Francisco H.G. Ferreira.

And now let’s define our terms:

• Productivity

• Surplus

• Incentives

7. Capitalism and Unequal Development

The Lucas (2000) Model of Uneven development. The Race-Horse Metaphor.

8. Further Reading



On the Evolution of the World Income Distribution

Charles I. Jones

The Journal of Economic Perspectives, Vol. 11, No. 3. (Summer, 1997), pp. 19-36.

Inequality among World Citizens: 1820-1992

François Bourguignon; Christian Morrisson

The American Economic Review, Vol. 92, No. 4. (Sep., 2002), . 727-744.

• JSTOR: Journal of Economic Perspectives: Vol. 14, No. 1, pp. 159-168
  Lecture 2 MDU Reading
  (tags: Macro Readings)
• Eviews macros for Godley - Lavoie 2006
  Really useful software for Godley 2006
  (tags: Macro Intl+Monetary+ecs software)