AAE373

Gross vs. Net Domestic Product

"gross" means before accounting for the depreciation of capital. The opposite of gross is net. To understand this distinction, we need to distinguish between flows and stocks in macroeconomics.

Stiglitz reading

1. Are economic trends over the past three decades largely the result of globalization?Globalization has played a central role, even after taking account of changes in technology and economic structure. 2.Are these results inevitable?No 3. To what extent are economic outcomes due to the rules of the game? Is it because individual countries have done poor jobs managing the effects of globalization? To a great extent adverse consequences of globalization have arisen on the basis of bad policies, both in mulitlateral organisations and in individual countries. Globalization, if well managed, could have benefited all. But it was typically not managed well, and glob-alization has resulted in some-even possibly a majority-of citizens being worse off.

Collier- Cardinal Social Welfare

A cardinal social welfare function is a function that takes as input numeric representations of individual utilities(also known as cardinal utility), and returns as output a numeric representation of the collective welfare. The underlying assumption is that individuals' utilities can be put on a common scale and compared. Examples of such measures can be: •life expectancy, •per capita income. For simplicity, we might use expenditure as the measurement of utility.

Haughtonand and Khandker- Alternative Welfare Indicators

1.Income equals consumption plus change in net worth. This can used as a measure of welfare in developed countries, but it is often understated. 2.Consumption comes closer to measuring permanent income. However, •We need to value durable goods(by assessing the implicit rental cost), •We need to value housing(by estimating what it would have cost to rent) •We need to value in-kind income(household production) •We need to account for lifecycle income smoothing Converting household income to consumption per adult equivalent should capture differences in need by age, and economies of scale in consumption. The OECD income scale is: Adult Equivalent = 1 + 0.7×(NA−1) + 0.5×NC3. Other Metrics Other welfare measures include calorie consumption per person per day, food consumption as a proportion of total expenditure, and nutritional status as measured by stunting or wasting.

cotton prices peak in

2011

Edgeworth Box

A device used to depict the distribution of goods in a two good-two person world. available quantities of goods 1 and 2 between two consumers.

subsidy

A government payment that supports a business or market

Normative and Positive Theories

A positive analysis, analogous to the study of electromagnetism or molecular biology, involves only the attempt to understand the world around us without value judgments. •Economic analyses employing value judgments are known as normative analyses. When everyone is made better off by a change, recommending that change is relatively uncontroversial. •A cost-benefit analysis totals the gains and losses to different individuals in dollars and suggests carrying out changes that provide greater benefits than harm. A cost-benefit analysis is a normative analysis. •Welfare analysis posits social preferences and goals, permitting an optimization approach to social choice. Welfare analysis is normative. •Economics helps inform society about the consequences of decisions, but the valuation of those decisions is a matter for society to choose.

Price ceilings in practice

A recent example of a government-imposed price ceiling was witnessed in Mexico in 2014 where the demand for ethanol in the US market has driving up maize prices. In order to protect the well-being of the poor population who spend a large fraction of their income on maize, the government of Mexico eliminated tariffs on maize and placed a legal limit on the price. With continuing interest in corned-based ethanol north of the border, this problem is unlikely to disappear in the near future.

An import tariff in a small open economy

A tariff on imports increases the domestic price to Pw+T, increases domestic production from 0 to QS, and reduces domestic demand from Q∗to QD. Components of the diagram may be interpreted as follows: A Increase in producer surplus, C Tariff revenue, A+B+C+D Decrease in consumer surplus (relative to free trade), B+D Excess burden of the tariff.

Firms and Production

Activities in the Arrow-Debreu framework transform some goods and factors into others goods. These may include trade activities which transform domestic into foreign goods, activities which transform leisure into labor supply, and more conventional production activities which transfer labor, capital and materials into products. Activities are most usefully represented by their dual, or cost-functions. Equilibrium conditions relate marginal cost to the value of output: no firms earn an excess profit, and non-profitable activities are idle.

The president of the World Bank is, traditionally, an

American. The World Bank and the IMF are both based in Washington, D.C., and work closely with each other.

Second Fundamental Theorem of Welfare Economics

Any efficient allocation can be attained by a competitive equilibrium, given the market mechanisms leading to redistribution. This theorem is important because it allows for a separation of efficiency and distribution matters. Those supporting government intervention will ask for wealth redistribution policies.

Nepal- Life in the Hills Remains Difficult

Aros' mother is 65 and in bad health. Aros is a smart guy who grew up in the Nepal hills, 20-25 years old, speaks French and English, and has a job offer in France; but he stays in Nepal to take care of his mother.

Collier- Social democracy Special Circumstances

As is the case with all ideologies, social democracy was built on distinctive circumstances. An invisible and unquantifiable asset was accumulated during World War II: shared identity forged through supreme and successful national effort. Triumphant achievements of capitalism harnessed to communitarian social democracy were witnessed from 1945 to 1980. Social democrats started then to drift from their origins, as the practical reciprocity of communities has been captured by middle-class intellection. As the asset of shared identity eroded, the power of the paternalist state became increasingly resented.

Collier- Origins of Social Democracy

Cities founded in the industrial revolution were the first to face anxieties brought on by technical change and trade. Cooperative organizations emerged to address the anxieties brought on by the industrial revolution. The key to success lay in the benefits of reciprocity. Building societies, savings and loans, and agribusiness cooperatives spread across Europe and became the foundation of center-left social democracies. From there they came to America (e.g., dairy cooperatives in Wisconsin). The policy agenda of the center-left were always practical: health care, pensions, education, unemployment insurance.

Coal Burning Produces Global Warming

Coal is the largest source of fuel for the generation of electricity worldwide, as well as the largest worldwide source of carbon dioxide emissions. Carbon dioxide is a greenhouse gas and the major contributor to an increase in global average temperature and related climate changes. Gross carbon dioxide emissions from coal usage is slightly more than that from petroleum and about double the amount from natural gas.

Coal Markets introduction

Coal is the most abundant and widely distributed fossil fuel. Coal's history goes back 2000 years with a well developed industry by the year 1200. In the middle 1800's Great Britain produced 60% of the world's coal from 3,000 mines. 15% of its output was exported. U.S. and Russia together accounted for 20% of world output. By 1900, the US surpassed the UK in coal production, and by 1920 the US consumed 50% of the world's production.

Factors Influencing Coal Markets

Coal use has historically followed GDP with significant downturns in Europe following WW I, and throughout the world during the GreatDepression. There were substantial reductions in coal production in the Former Soviet Union, Eastern Europe and the UK during the 1990's.

Appropriate Data for Pivot Tables

Data arranged in a list: •Columns represent fields •Columns contain one sort of data •Rows represent a record of related data •First row = column label• Remove subtotals (use caution working with subtotals) De-normalized database extracts are great for pivoting!

Structural Adjustment

Development strategy that stresses integration into global markets, privatization, and so on. Supported by the World Bank, IMF, and other major northern financial institutions.

Hans Rosling and the World 15

Extreme poverty has fallen Rural poverty rates typically exceed urban poverty rates In many countries, poorer households are converging The share of underweight children has fallen since 1990 Globally, three of four children finish primary school Global forest area has declined with some exceptions Outdoor air pollution has risen. South Asia continues to grow faster. In 2015, China's GDP Exceeds USA GDP on PPP basis As a share of GDP, manufacturing gives way to services Bribes are more common in low- and lower-income countries. Cost of starting a business is falling, particularly in Africa. Cellular phone subscriptions grow, fixed-lines fall. Refugees, especially from Syria, are increasing. Net debt inflows have declined in Africa.

Cotton Production in Africa continued...

Fada N'Gorma, Burkina Faso: Oula Traore, of Environmental and Agriculture Research Institute of Burkina Faso, explains the tests being performed on different cotton plants. Traore works at a testing facility where the U.S.-based Monsanto company is testing its seed types. Sikasso, Mali: Workers at a cotton gin in southeastern Mali struggle in the back of a truck that brings thousands of pounds of cotton in from the rural area. Using an outdated vacuum machine they suck up cotton in the back of the truck and it begins its journey to becoming clean, finished lint. Sikasso, Mali: Workers at a cotton gin in Southeastern Mali watch the gin as it attempts to separate the lint from the seed. The American-made gin is over 30 years old and breaks down frequently, leaving the workers little option but to improvise parts and solutions on the spot. Koutiala,Mali: N'Goro Malle, the head of the cotton classification office, tests the strength of a cotton sample taken from a bale of recently-ginned cotton. The workers at the classification office take a sample from every bale and test the cotton's color and fiber length by hand. Bobodiolasso, Burkina Faso: Workers move 500-pound bales of cotton by hand. The warehouse and gin are owned and operated by SOFITEX, Burkina Faso's national cotton company. The bales will be sold on the world market, competing with cotton from the United States and other countries around the world.

Engle Curve

Food Spending versus Income income= 45 degree line

market value

GDP is a market value- goods and services are valued at their market prices. we add the market values so we have a total value of output in dollars.

final goods and services

GDP is the value of the final goods and services produced a final good/service is an item bought by its final user during a specified time period a final good contrasts with an intermediate good, which is an item that is produced by one firm, bought by another firm, and used as a component of a final good or service Excluding intermediate sales of goods and services between firms, thereby avoiding double counting.

produced within a country

GDP measures production within a country i.e. domestic production in a given period of time GDP measures production during a specific time period, normally a year or a quarter of a year.

GDP and the circular flow of expenditure and income

GDP measures the value of production, which also equals total expenditure on final goods and total income. the equality of income and output shows the link between productivity and living standards The circular flow diagram illustrates the equality of income, expenditure, and the value of produce.

GDP DEFINED

GDP= gross domestic product, is the market value of all final goods and services produced in a country in a given period of time

The Paradox of Globalization

Globalization will work for everyone only if all countries abide by the same set of rules, hammered out and enforced by some form of technocratic global gov't The reality is, however, that most countries are unwilling to give up their sovereignty, their distinctive institutions and their freedom to manage their economies in their own best interests. Not China. Not India. Not the members of the European Union, as they are now discovering. Not even the United States. •In the real world, argues Rodrik, there is a fundamental incompatibility between hyper-globalization on the one hand and democracy and national sovereignty on the other.

A price ceiling leads to excess demand.

Governments can place an upper bound on prices, but this leads to shortages and losses in social surplus. The loss illustrated by the shaded are in this figure is conservative because it assumes that the available supply is provided to the consumers with the highest willingness to pay.

Costless Redistribution

Half a U graph going upwards

Objectives and Aftermath of Bretton Woods Conference

Historians have argued that the main goal of the United States at Bretton Woods was to promote international development as an investment in peace, to open the world for cheap imports, and to create new markets for American exports. As late as November 1945, White continued to argue for improved relations with the Soviet Union. White was accused in 1948 of spying for the Soviet Union, which he adamantly denied. His status as a Soviet in formant was confirmed by declassified FBI documents related to the interception and decoding of Soviet communications

Financial markets involve deficits and investment

Household income (Y) equals household expenditure, hence household saving S is income minus net consumption and tax expenditure: Y=C+S+T⇒S=Y−C−T

Consumption versus Income Measures of Poverty: Consumption ("achievement") CONS:

Households may not be able to smooth consumption (i.e. via borrowing, social networks) Consumption choices made by households may be misleading (i.e. if a rich household chooses to live simply, that does not mean it is poor.) Some expenses are not incurred regularly, so data may be noisy Difficult to measure some components of consumption, including durable goods.

Tjalling Koopmans' Nobel Address - 1975

If economics is the study of the "best" use of scarce resources, where does the boundary with management science, engineering, climate science lie? Optimization and economic theory were in a very exciting period during the 1950s and 60s.The simplex algorithm for linear programming opened a new frontier for the use of computers in management. Economists learned to relate ideas from optimization theory to better understand the role of market prices in the allocation of goods and factors of production.There were high exceptions (perhaps too high). Academics were not in full agreement about the appropriate role of economics in academic and policy discourse. British economist A. C. Pigou (1920) as quoted by Koopmans: ". . . it is not the business of economists to teach woolen manufacturers how to make and sell wool, or brewers how to make and sell beer . . . ".Many European economists, particularly German, Dutch and Scandinavians, disagreed. Models of production planning and economic efficiency were perceived as valuable contributions to both the theory of the firm and public economics.

Limits of the Welfarist Approach

If people have enough income to feed, clothe, and house themselves adequately, how concerned should we then be if they do not in fact do so? In some cases there may be informational problems-perhaps no one in the household knows how to cook-but in the absence of such imperfections, to what extent are we justified in trying to save people from themselves? This age-old dilemma does not have a simple solution.

Linking elements of the mode: Trade balance

Imports (M) have to be financed by exports (E) and flows of foreign money (B): PmM= PeE + B relation between imports and export depends on terms of trade (the ratio of export prices to import prices), while foreign capital determines the intercept initially assume that B is zero (runs through origin) and that world market prices are 1 (45 degree angle)

Public goods

In economics, a public good is a good that is both non-excludable and non-rivalrous, in that individuals cannot be excluded from use or could benefit from without paying for it, and where use by one individual does not reduce availability to others or the good can be used simultaneously by more than one person. Public goods stand in contrast to common or private good such as wildfish stocks in the ocean, which is non-excludable but is rivalrous to a certain degree, as if too many fish are harvested, the stocks will be depleted.

The Washington Consensus

In the 1990s, the World Bank and the IMF forged the Washington Consensus, policies that included deregulation and liberalization of markets, privatization and the downscaling of government. Though the Washington Consensus was conceived as a policy that would best promote development, it was criticized for ignoring equity, employment and how reforms like privatization were carried out. Joseph Stiglitz argued that the Washington Consensus placed too much emphasis on the growth of GDP, and not enough on the permanence of growth or on whether growth contributed to better living standards.

` Jeremy Bentham

Jeremy Bentham (1748-1832) : the founder of modern utilitarianism which has a "fundamental axiom": ..it is the greatest happiness of the greatest number that is the measure of right and wrong. Bentham advocated for individual and economic freedoms, the separation of church and state, freedom of expression, equal rights for women, the right to divorce and the decriminalizing of homosexual acts, abolition of slavery, of the death penalty, and of physical punishment, including that of children. He has also become known as an early advocate of animal rights. Though strongly in favor of the extension of individual legal rights, he opposed the idea of natural law and natural rights (both of which are considered "divine" or "God-given" in origin), calling them "nonsense upon stilts".

Haughtonand and Khandker- Aggregate Measures of Poverty

Let N represent the population, q the proportion with gh>0 The headcount measure of poverty is H=q×N The aggregate poverty gap is ∑hgh which captures the intensity of poverty. •When do these measures offer distinct views of aggregate poverty?

Aggregate Measures of Poverty

Let N represent the population, q the proportion with gh>0 The head count measure of poverty is: H=q×N The aggregate poverty gap is: ∑hgh which captures the intensity of poverty.

MDGs: Self Assessment

MDGs have been declared the most successful anti-poverty movement in history: •Since 1990, the number of people living in extreme poverty has declined by more than half (1.9 billion in 1990 to 836 million in 2015) •The working middle class - living on more than $4 a day - nearly tripled between 1991 and 2015. •The proportion of undernourished people in the developing regions has fallen by almost half •The primary school enrollment rate in the developing regions has reached 91 percent, and many more girls are now in school compared to 15 years ago. (out-of-school primary students 57 million in 2015, down from 100 million in 2000)

The Weird Values of Bentham

Many of Jeremy Bentham's ideas have been incorporated in mainstream economics. Economic "man" is: •Infinitely selfish •Infinitely greedy •Cares only for himself. Social welfare function: W=∑hnhU(ch) in which h indexes household types, nh is the number of households of type h, and U(ch) describes "happiness" of type h households who have per-capita consumption level ch Maximization (ofW) becomes the key mathematical device for public policy assessment. The purpose of the state becomes that of designing policies for redistribution which maximize social welfare.Social democracy becomes something different from the design of institutions to structure reciprocal obligations.

Public Goods and Over-Use

Many public goods may at times be subject to excessive use resulting in negative externalities affecting all users; for example air pollution and traffic congestion. Public goods problems are often closely related to the"free-rider" problem, in which people not paying for the good may continue to access it. Thus, the good may be under-produced, overused or degraded. Public goods may also become subject to restrictions on access and may then be considered to be club goods; exclusion mechanisms include toll roads, congestion pricing, and pay television with an encoded signal that can be decrypted only by paid subscribers. There is a good deal of debate and literature on how to measure the significance of public goods problems in an economy, and to identify the best remedies.

the role of economic models

Models play an important role in the formulation of trade policy. In our introductory lectures in this class, we have explored the Marshallian market equilibrium model for competitive markets in which supply and demand are jointly determined along with price. The lectures have explored in a graphical framework the implications of government policy interventions in this model, interventions such as taxes, quotas, tariffs and subsidies.

Features of Living Standards Measurement Surveys

Motivated by the need to measure poverty more accurately, the World Bank has taken the lead in the development of relatively standard, reliable household surveys, under its Living Standards Measurement Surveys (LSMS) project.

Haughtonand and Khandker- Features of Living Standards Measurement Surveys

Motivated by the need to measure poverty more accurately, the WorldBank has taken the lead in the development of relatively standard, reliable household surveys, under its Living Standards Measurement Surveys(LSMS) project.

Introducing Mules

Mules based in region r carry loads in return for compensating payment in goods. The arbitrage conditions for mules operating from region r is:μ∑gPgr︸︷︷︸FeedingCosts≥PTrr′+PTr′r︸︷︷︸Earnings∀r′∈Nr When the cost of mules (μ) is sufficiently low, porters are driven from the market and equilibrium wages fall.

From Individual Choice to Trade: Pareto efficiency or Pareto optimality

Pareto efficiency or Pareto optimality is a situation where no individual or preference criterion can be better off without making at least one individual or preference criterion worse off. The concept is named after Vilfredo Pareto (1848-1923), Italian engineer and economist, who used the concept in his studies of economic efficiency and income distribution. The following three concepts are closely related: •Given an initial situation, a Pareto improvement is a new situation where some agents will gain, and no agents will lose. •A situation is called Pareto dominated if it has a Pareto improvement. •A situation is called Pareto optimal or Pareto efficient if no change could lead to improved satisfaction for all parties.

Howard Friedman

analysis suggesting that the U.N. MDG did not accelerate developmental progress (Note: This paper has been covered in several news stories, including one at US News and World Report).

Collier: The Nationalist/Populist Revolt

Policies addressing poverty in developing countries are affected by three grim rifts which have opened in societies around the world: 1) the geographic divide: booming metropolis and broken provincial cities and towns 2) the educational divide: families of hyper-success versus families disintegrating into poverty, 3) the global divide: rampaging growth with concentration of wealth in USA, Britain, and France, despairing poverty in Africa, unprecedented growth and convergence in China. Events of the past three years force us to reconsider morale and conceptual frameworks which guide the governance of capitalism.

What is poverty and why measure it? (Haughton and Khandker)

Poverty is a pronounced deprivation in well-being. Three views of poverty: i) Resources sufficiency. Typically measured by whether income is above a threshold. A monetary threshold is the most conventional definition. ii) Consumption or health outcomes. Typically focus on food, shelter, health care, or education. iii) Capability to function in society. A broader interpretation of poverty suggested by Sen (1987). Poverty refers to a lack of capabilities, income or education. It manifests in insecurity, low self-confidence, a sense of powerlessness, absence of rights - e.g. freedom of speech.

Economic Perspective

Public Good: is both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce avaliability to others Budget Constraints

Examples of Public Goods

Public goods include knowledge, official statistics, national security, common language(s), flood control systems, lighthouses, and street lighting. Public goods that are available everywhere are sometimes referred to as global public goods. Examples of public good knowledge is men's, women's and youth health awareness, environmental issues, maintaining biodiversity, sharing and interpreting contemporary history with a cultural lexicon, particularly about protected cultural heritage sites and monuments, popular and entertaining tourist attractions, libraries and universities.

Output quotas.

Quotas operate very much like taxes, even though the policy instrument is a quantity rather than a price. One important difference relates to the allocation of quota rents. When quotas are grandfathered, the rents accrue to individuals rather than governments, and this leads to an excess societal cost when (as almost always) the marginal cost of public funds are substantially greater than unity.

the global goals (SDG)

Seventeen goals that aim to achieve three things: end poverty, fight inequality and injustice and tackle climate change for everyone by 2030.

Consumption versus Income Measures of Poverty: Consumption ("achievement") PRO:

Shows current actual material standard of living Smoothes out irregularities, and so reflects long-term average well-being Less understated than income, because expenditure is easier to recall.

Two commonly employed health metrics are

Stunting: low height for age, is caused by long-term insufficient nutrient intake and frequent infections Wasting: or low weight for height, is a strong predictor of mortality among children under five. It is usually the result of acute significant food shortage and/or disease.

Prices and poverty

Terms of trade and poverty can play a crucial role. Prices changes may increase poverty

Optimization Methods in Economics

The Arrow Debreu general-equilibrium model consists of: •Technologies transform commodities are operated by competitive, profit-maximizing firms. •Markets, typically with supply and demand mediated through prices. •Budget-constrained utility-maximizing households.

Benthamite vs Rawlsian social welfare functions

The Benthamite and Rawlsian social welfare functions express starkly contrasting views about how a society should be organized in order to maximize welfare, with the first emphasizing total incomes and the second emphasizing the needs of the worst-off. The max-min welfare function can be seen as reflecting an extreme form of poverty aversion on the part of society as a whole, since it is concerned only with the worst conditions that a member of society could face.

Structural Adjustment effects

The effect of structural adjustment policies on poor countries has been one of the most significant criticisms of the World Bank. The 1979 energy crisis plunged many countries into economic crisis, and the World Bank responded with structural adjustment loans, which distributed aid to struggling countries while enforcing policy changes in order to reduce inflation and fiscal imbalance. Some of these policies included encouraging production, investment and labour-intensive manufacturing, changing real exchange rates and altering the distribution of government resources. Structural adjustment policies were most effective in countries with an institutional framework that allowed these policies to be implemented easily. For some countries, particularly in Sub-Saharan Africa, economic growth regressed and inflation worsened.

The Constant Elasticity of Substitution (CES) Model

The CES utility function is based on two parameters: the bench mark budget shares. (In a two good model this is one parameter,θ, where0< θ <1), and the elasticitiy of substitutionσ whereσ≥0 (andσ6= 1).Lettingρ= 1−1/σthe CES utility function in the two-good case is: look it up Optimal choices (demand functions) are slightly more complicated that theCobb-Douglas model.

Collier- the New Ruling Class:

The Educated Middleclass: •Centered on universities •Shared identity in which esteem comes from skill •Distinctive morality which elevates particular groups (minority, sexual orientation, victims) •Perceived claim for moral superiority. •Social detachment of metros from provinces.

The Pareto Frontier and Pareto Efficiency

The Pareto frontier is the set of all Pareto efficient allocations, conventionally shown graphically. It also is variously known as the Pareto front or Pareto set."Pareto efficiency" is considered as a minimal notion of efficiency that does not necessarily result in a socially desirable distribution of resources: it makes no statement about equality, or the overall well-being of a society. It is a necessary, but not sufficient, condition of efficiency.

Economic Theory

The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of think-ing which helps its possessor to draw correct conclusions.

Criticisms and Controversy World Bank

The World Bank has long been criticized by non-governmental organizations (NGOs) and academics, including former Chief Economist Joseph Stiglitz. Stiglitz argued that the so-called free market reform policies that the Bank advocates are often harmful to economic development if implemented badly, too quickly ("shock therapy"), in the wrong sequence or in weak, uncompetitive economies. One of the most common criticisms of the World Bank has been the way in which it is governed. While the World Bank represents 188 countries, it is run by a small number of economically powerful countries. These countries (which also provide most of the institution's funding) choose the leadership and senior management of the World Bank, and their interests dominate the bank.

Budget Line

The bundles of goods that exhaust a consumers income. •PxX + PyY = M.

The Core

The core is the set of all Pareto-optimal allocations that are welfare-improving for both consumers relative to their own endowments. Rational trade should achieve a core allocation.

Stiglitz- Corporate Support for Tax Avoidance

The failure to stop the use of globalization for tax avoidance is itself a manifestation of the mismanagement of globalization and an illustration of the power relations underlying the rules of globalization. It would have been no more difficult to have international agreements circumscribing global tax avoidance than to have international agreements over trade. But it was in the interests of corporations to have global trade agreements, and so we had them; and it was in the interests of multinational corporations to avoid taxation, and so we didn't have agreements to circumscribe tax avoidance. In the end, in the United States, corporate tax receipts fell from 5 percent of GDP in the 1950s to 2 percent today.

Collier- Use of Social Welfare: Benthamite

The form of the social welfare function is intended to express a statement of objectives of a society. The utilitarian or Benthamite social welfare function measures social welfare as the total or sum of individual consumption: W=∑nh=1chn=c whereW is social welfare and c his the consumption expenditure of household h and c is average consumption expenditure.

Collier- political consequences

The gulf between what has happened and what might have been feasible provides energy for two types of politicians: •Populists - charismatic charlatans who are unbothered by evidence and instead leap to solutions which ring true for two minutes, distracting voters through a kaleidiscope of entertainment. •Ideologues - seductive combination of moral certainties and all-purpose analysis - a confident reply to any problem. Both of these thrive on anxieties created by new rifts facing society which are new and complex. Viable remedies exist but these must be pragmatic, not based on the moral passion of ideology or the casual leap to solutions suggested by charismatic populists. Solutions require analysis, evidence and cool pragmatism.

lifecycle smoothing

The life cycle theory of savings suggests that people prefer smoothconsumption over their lifetime. Workers can smooth their consumption by borrowing while they are young, saving in middle age, and "dissaving" during retirement.

Haughtonand and Khandker- Measuring Well-Being WELFARIST APPROACH

The welfarist approach seeks to measure household utility, which in turn is usually assumed to be approximated by household consumption expenditure or household income. Welfare is a function of consumption: Wh=U(CF,CH,CE,Cm) CF: Consumption of food CH: Consumption of housing CE:Consumption of education CM: Consumption of health (medical metrics)

Measuring Well-Being

The welfarist approach seeks to measure household utility, which in turn is usually assumed to be approximated by household consumption expenditure or household income. Welfare is a function of consumption: Wh=U(CF,CH,CE,Cm) CF Consumption of food CHConsumption of housing CE Consumption of education CM Consumption of health (medical metrics)

Market equilibrium in a small open economy

The world market price of the good is PW. The autarky (no trade) price is PA. In autarky, domestic demand and supply equal QA. In an open economy, domestic production occurs at QS, domestic demand is QD, and the level of imports equals QD−QS

Fundamental Theorems of Welfare Economics

There are two fundamental theorems of welfare economics: 1 Any competitive equilibrium leads to a Pareto efficient allocation of resources. 2 Any efficient allocation can be attained by a competitive equilibrium, given the market mechanisms leading to redistribution.

Deadweight loss atQ2>Q∗

There is also a loss in social surplus when too much output is produced.

The Policy Issue- coal

When Australia abates carbon, this drives down the price of coal and increases incentives to coal exports. If coal exports increase, this can induce increased emissions in China. The purpose of this computational exercise is to assess the global environment effectiveness of sub global policy measures. More to the point, to what extent does international trade vitiate the effectiveness of climate policy measures undertaken in a subset of regions.

Lifecycle Smoothing

google

The Cobb-Douglas Model

Utility function based on parameter θ, 0< θ <1: U(C,H) =C1−θHθ Optimal choices (demand functions) are then:C= (1−θ)M and H=θMpH

The Neoclassical Model

Utility maximization: maxU(C,H) subject to C+pHH=M where: H Housing (square feet - cubic meters in Holland) C Consumption of other goods ($ or U) M Budget (a constraint on choice)

A paternalistic (nonwelfarist) approach

We can alternatively focus on whether households have attained certain minimal levels of, say, nutrition or health. Thus, while the welfarist approach focuses on per capita consumption expenditure or income, other (nonwelfarist) measures of individual welfare might include indicators such as infant mortality rates in the region, life expectancy, the proportion of spending devoted to food, housing conditions, or child schooling; these may be thought of as measures of output, reflections of utility rather than inputs into the generation of utility.

Tax incidence in extreme cases

When supply is perfectly elastic, the tax incidence falls solely on the consumer; and when supply is perfectly inelastic, the tax incidence falls solely on the producer.

inelastic supply

When the percentage change in the quantity supplied is less than the percentage change in price.

A price floor leads to excess supply.

While less commonly observed, lower bounds on prices have been employed. For many years, airlines prices were administered, a levels exceeding the undistorted equilibrium level. This was justified on the basis of guaranteeing adequate and orderly markets. As a consequence of these policies, there used to be many empty seats. You may have noticed that there are very few empty seats on deregulated airline routes these days.

William Easterly

William Easterly has written several pieces about problems with theMDG

A subsidy is a negative tax

With an output subsidy, output is too high, resulting in an excess burden exactly in a manner analogous to an output tax.

The World Bank is a component of the

World Bank Group

The demand curve

a graph of the relationship between the price of a good and the quantity demanded -function that gives the # of units purchased as a function of the price.

output quota

a limit on the quantity of output a firm produces

123 model

capture mechanisms by which external shocks and domestic policies ripple through the economy many problems and solutions are related to links between external sectors and domestic economy Minimum requirements for an interesting model 1 small country 2 producing sectors; nontradable and tradable 3 goods: nontraded, import, export mechanisms are transparent can be solved graphically, analytically or with excel behavior is similar to that of more complex models

changes in budget line

changes in price and income

Pareto-optimal trades not blocked by A or B

distance between yellow dots, these are the core

Linking elements of the model (1)

domestic markets: supply needs to equal demand for the domestic, non-traded good (D): Ds=Dd

Charles Keeny

has written an interesting essay about the transition from the MDG to the SDG.

Haughtonand and Khandker- justifications for measuring poverty

i) Keep poor people on the agenda. "A credible measure of poverty can be a powerful instrument for focusing the attention of policy-makers on the living conditions of the poor". ii) Target interventions. One cannot help poor people without knowing who they are. Poverty profile sets out the major facts, so these can be correlated with geography, community characteristics, household characteristics, iii) Design policies. Policy design demand that we predict the effects of and evaluate policies and programs designed to help poor people. iv) Evaluate institutions. Poverty reduction goals are central to institutional objectives for the World Bank, the FAO and even the OECD12

There are three methods for using Excel which are emphasized in the class:`

i. Data analysis- most often with Pivot Tables, the Excel version of a data cube. These provide an effective method for sifting through datasources and model results. These require some familiarity with the Pivot Table wizard and the Excel chart interface. ii. Graphical algebraic models- Excel workbooks for generating graphical visualization, requiring the familiarity with cell references, formulas and charts. iii. Numerical optimization models- Excel workbooks which solve problems formulated with an objective and constraints.

The World Bank Group

is an extended family of five international organizations, and the parent organization of the World Bank, the collective name given to the first two listed organizations, the IBRD and the IDA: •International Bank for Reconstruction and Development (IBRD) •International Development Association (IDA) •International Finance Corporation (IFC) •Multilateral Investment Guarantee Agency (MIGA) •International Centre for Settlement of Investment Disputes (ICSID)

The World Bank

is an international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects.

Real GDP

is calculated by converting transactions from current domestic price into a different price level based on a GDP deflator.

Flow

is quantity per unit of time

Nominal GDP

is the market value of transactions. measured in domestic currency at CURRENT PRICES

Contract curve

is the set of all pareto optimal allocations (marked by the black dot) the contract curve connects them all

domestic market

look at graph CGE 15 page 16/19

balance of trade

look at graph CGE 15 pg 17/19

trade improves both A's and B's welfares pt2

new mutual gains-to-trade region is the set of all further Pareto-improving reallocations. Smaller region, inside the bigger region. Further trade cannot improve both A and B's welfares.

exchange economies

no production, only endowments, so no description of how resources are converted to consumables. general equilibrium: all markets clear simultaneously

cluster sample

obtained by selecting all individuals within a randomly selected collection or group of individuals

General equilibrium

occurs when prices p1 and p2 cause both the markets for commodities 1 and 2 to clear x1*A + x1*B = w1*A + w1*B x2*A + x2*B = w2*A + w2*B

Pragmatic approach

people pay attention to the aspect of a message that is most relevant to their current goals indicates the need to step out of the battle for good and evil.

The intention behind the founding of the World Bank was to

provide temporary loans to low-income countries which were unable to obtain loans commercially. The Bank may also make loans and demand policy reforms from recipients.

Stock

quantity that exists at a point in time.

Social order is

really hard to retain, a phenomenon known as "socialentropy", hence it is easy to understand the conservative instinct for social stability rather than social change.

Pareto Optimality

the only way one consumer's welfare can be increased is to decrease the welfare of the other consumer. An allocation where convex indifference curves are "only just back-to-back" is Pareto-optimal.

Gross Domestic Product- circular flow diagram

shows the transactions among households, firms, governments, and the rest of the world. These transactions take place in factor markets, goods markets, and financial markets firms hire actors of production from households (ppl). total income paid by firms to households. Households buy consumer goods and services. Connects households to firms again. Households save (connecting households to financial markets) and pay taxes (connects households and government). Firms borrow some of what households save to finance their investment (firm borrowing- connects firms and financial markets) Firms buy capital goods from other firms (connects firms to goods markets) Governments by goods and services (goes from government to goods market to firms)

The endowment allocation

the endowment allocation is Wa= (6,4) Wb= (2,2) Look at the google slides

The World Bank's most recently stated goal is

the reduction of poverty.

Cobb-Douglas and CES are Different when

σ= 0.2/2

MDGs Assessment (cont.)

•Remarkable gains have also been made in the fight against HIV/AIDS, malaria and tuberculosis (13.6 million receiving antiretroviral therapy, increased from 800,000 in 2003; tuberculosis programs have saved an estimated 37 million lives) •The under-five mortality rate has declined by more than half, and maternal mortality is down 45 percent worldwide. •The target of halving the proportion of people who lack access to improved sources of water was also met.

Exchange entitlements and poverty

(budgets pdf)

Other feasible allocations

(x1a, x2a) denotes an allocation to consumer a. (x1b, x2b) denotes an allocation to consumer B An allocation is feasible if and only if: x1a +x1b </= W1a + W1b x2a +x2b </= W2a + W2b

Stiglitz

- says that WTO and IMF are applying same solutions for ALL problems- does not work bc countries are different and have different problems - during the Asian economic crisis was applying the same policies that the IMF used for Latin America in the '80s

Exchange

- two consumers, A and B -Their endowments of goods 1 and 2 are Wa= (w1a,w2a) and Wb= (w1b, w2b) E.g. Wa= (6,4) and Wb= (2,2) The total quantities available: are W1a + W1B= 6+2= 8 units of good 1 and W2a + W2b= 4+2= 6 units of good 2

Changes in Price

-A decreases in the price of good X rotates the budget line counter-clockwise (PX0> PX1). -An increases rotates the budget line clockwise (not shown).

Changes in income

-Increases lead to a parallel, outward shift in the budget line (M1> M0) .-Decreases lead to a parallel, downward shift (M2< M0).

Create a PivotTable

1 Select any cell in the worksheet that contains data, or select all the data and columns you want to include in the report. On the Data menu, click PivotTable and PivotChart Report. 2 In Step 1 of the wizard, make sure that Microsoft Excel list or database is selected. 3 UnderWhat kind of report do you want to create?, make sure thatPivotTable is selected. 4 Click Next.

Market Data and Models

1 With the worldwide web, there are many data sources. 2 The data required for academic research is fundamentally different than the data required by market participants, many of whom are trying to shave small price differences. 3 Datais not very valuable without a model. 4 Economics offers several alternative approaches for modeling: •Econometrics works with large quantities of data and often very few parametric assumptions. •Calibrated microeconomic models begin with an explicit theory and relatively few data are required. •Econometrics can be concerned with measuring elasticities while calibrated policy analysis seeks to assess the policy implications of a given set of benchmark data values and elasticity assumptions. 5 High school students and naive undergraduates are typically preoccupied with data. Graduate students and professional researchers are typically preoccupied with models.

basic general equilibrium model: elements

1 producer 1 consumer 1 domestic market balance of trade

Alternative Welfare Indicators

1) Income equals consumption plus change in net worth. This can used as a measure of welfare in developed countries, but it is often understated. 2) Consumption comes closer to measuring permanent income. However, •We need to value durable goods(by assessing the implicit rental cost), •We need to value housing(by estimating what it would have cost to rent) •We need to value in-kind income(household production) •We need to account for lifecycle income smoothing Converting household income to consumption per adult equivalent should capture differences in need by age, and economies of scale in consumption. The OECD income scale is: Adult Equivalent = 1 + 0.7×(NA−1) + 0.5×NC3. Other Metrics include calorie consumption per person per day, food consumption as a proportion of total expenditure, and nutritional status as measured by stunting or wasting.

4 features of GDP

1) it is measured as a market value transaction. 2) it measures final demand for goods and services 3) it refers to production within a country or region 4) it refers to a particular time period

The Washington Consensus: Williamson's Definition

1. Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP; 2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary healthcare and infrastructure investment; 3. Tax reform, broadening the tax base and adopting moderate marginal tax rates; 4. Interest rates that are market determined and positive (but moderate)in real terms; 5. Competitive exchange rates; 6. Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs; 7. Liberalization of inward foreign direct investment; 8. Privatization of state enterprises; 9. Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions; 10. Legal security for property rights.

Themes in the Discontent with Globalization (8)

1. Globalization has benefits, but these are smaller than was claimed, and simplistic models used to advocate policy to advance globalization ignored adverse effects. 2.When reality differed from the promises, confidence in globalization, the elites, and institutions waned. 3.Globalization produced huge distributional effects on income and wealth. Countervailing measures were required to assure shared benefits. 4.Failures of globalization are failures in governance. 5.Governance problems are profound, in large part because multinational firms and financial institutions have had disproportional influence. 6.Positions have also been influenced by ideology. 7.Money in politics in the US has had a major impact, and this has affected the distribution of power. 8.Globalization places a burden on governments if they are to protect workers displaced by outsourcing. Not only have governments failed to address these issues, they have (in some cases) created tax havens to entice multinationals and tax avoidance schemes to help corporations and rich individuals hide income.

Development relevance- agriculture

Agricultural land covers more than one-third of the world's land area. In many industrialized countries, agricultural land is subject to zoning regulations. In the context of zoning, agricultural land (or more properly agriculturally zoned land) refers to plots that may be used for agricultural activities, regardless of the physical type or quality of land. A substantial contribution to agriculture in the last century has been the escalation from manual and stock-animal farm work to gas-powered farm equipment. Globally, steel plows, mowers, mechanical reapers, seed drills, and threshers contributed to the development of mechanized agriculture, tractors enabled the farmer to sow and harvest large agricultural lands with less manpower. In modern times, powered machinery such as tractors, has replaced many jobs formerly carried out by men or animals such as oxen, horses and mules. FAO estimates that most farmers in developing countries experience a greater annual expenditure on farm power inputs than on fertilizer, seeds or agrochemicals. Agriculture is still a major sector in many economies, and agricultural activities provide developing countries with food and revenue. But agricultural activities also can degrade natural resources as poor farming practices cause soil erosion and loss of soil fertility. There is no single correct mix of inputs to the agricultural land, as it is dependent on local climate, land quality, and economic development; appropriate levels and application rates vary by country and over time and depend on the type of crops, the climate and soils, and the production process used."

Rothwell: Elite Professionals and Regulatory Capture

Almost all of the growth in top American earners has come from just three economic sectors: professional services, finance and insurance, and health care, groups that tend to benefit from regulatory barriers that shelter them from competition. How much money elite professionals earn relative to th median worker correlates highly with income inequality across nations.

Excise taxes raise revenue, but there is an excess burden.

An excise tax (or a specific tax) is an amount paid by either the consumer or the producer per unit of the good at the point of sale.

First Fundamental Theorem

Any competitive equilibrium leads to a Pareto efficient allocation of resources. The main idea here is that markets lead to a social optimum. Thus, no intervention of the government is required, and it should adopt only "laissez faire" policies. However, those who support government intervention say that the assumptions needed in order for this theorem to work, are rarely seen in real life.

Poverty Reduction Strategies

By the late 1980s, some international organizations began to believe that structural adjustment policies were worsening life for the world's poor, due to a reduction in social spending and an increase in the price of food, as subsidies were lifted. The World Bank changed structural adjustment loans, allowing for social spending to be maintained, and encouraging as lower change to policies such as transfer of subsidies and price rises. In 1999, the World Bank and the IMF introduced the Poverty Reduction Strategy Paper approach to replace structural adjustment loans.

Total expenditure

C + I + G + (X-M)

Collier- The Appeal of Populists

Charismatic populists eschew even rudimentary analysis of an ideological politician, leaping to solutions which ring true for two minutes. Debate strategy is to distract voters through a kaleidoscope of entertainment. Both ideologues and populists thrive on the anxieties created through the new rifts in society, yet neither group is capable of addressing these concerns. The rifts facing society are new and complex. Viable remedies exist, but these are not the moral passion of the ideologue or the casual leap of the populist. Solutions to problems arising from globalization and technology require analysis based on evidence and the cool hand of pragmatism.

A Brief History of the MDGs

Charles Keeny: In May 1996, the OECD Development Assistance Committee issued a report on development assistance after the end of the Cold War. "Shaping the 21st Century: The Contribution of DevelopmentCo-operation", framed aid as a tool to help the world meet a number of global development targets drawn from a decade of UN conferences on development and environment. The "International Development Goal" proposed covered poverty, nutrition, water, education, gender, and health. While the authors suggested, "the targets are aspirations for the entire development process, not just for co-operation efforts," the title of the report made clear that they were fundamentally about shaping the dialogue between aid donors and recipients.

An Illustrative Application

Chen Xi lives in Chengdu where he currently spends 30% of his income on rent. He has an employment offer in Beijing which pays 50% more than he currently earns, but he is hesitant to take the job because rental rates in Beijing are three times higher than inChengdu. Can you draw a diagram which illustrates how Chen's preferences determine whether or not he might wish to move? Optimal Choices Optimal ChoicesMigration choice depends on Chen Xi's willingness to substitute consumption of goods for consumption of housing. He would be unable to live in the same size house while enjoying the same level of consumption as in Chengdu, but if he lives in a smaller house, he could afford a higher level of consumption Hong Kong.

Consumers (Households and Governments)

Consumers in the Arrow Debreu framework are endowed with goods (and possibily tax revenue), and they demand commodities. Quantities demanded arise from optimization subject to a budget constraint.

Cotton production in the United States

Cruger, Miss.: Gilbert Taylor, 54, drives a $350,000 cotton picker in a field owned by a fourth-generation cotton farmer, in 2004. In the U.S. there are 14 major cotton growing states: Alabama, Arizona, Arkansas, California, Georgia,Louisiana, Mississippi, Missouri, North Carolina,Oklahoma, South Carolina, Tennessee, Texas and Virginia. Cotton from these states is sold worldwide, competing for buyers with crops grown in both developed and developing countries. Eastern Arkansas: A cotton picker harvests a field of cotton at a rate of 2,500 pounds of cotton every 11 minutes. The machine has automated sensors to line up with rows of cotton. The driver of a picker might make $75 a day for this work. According to the U.S.Department of Agriculture, the U.S. cotton industry accounted for more than $25 billion in products and services in 2001, generating over 400,000 jobs in industry sectors. Lakeview, Texas: Cotton farmers finish their annual pre-harvest pork roast dinner at the Texas Star Cooperative Gin. According to the United Nations, U.S. cotton was exported for 37 cents a pound in 2002, but cost 86 cents to produce, with the difference made up by U.S. taxpayers. The U.S. cotton industry was recently dealt a blow when the WTO agreed with Brazil in 2005 that U.S. subsidies depressed the world cotton price. Cruger, Miss.: A crop duster sprays pesticides and herbicides on a cotton field. Some cotton fields are sprayed as many as 30 times in one season, eradicating infectious diseases and insects, though harmful side effects to the environment can occur. American farmers point out that U.S. regulators apply some of the most rigorous environmental standards in the world. Pesticides still used in other countries have been banned in the United States. A 'boll buggie' machine brings the cotton from the picker to the module builder on the edge of the fields. According to the National Cotton Council of America, cotton was grown on about 35,000 U.S. farms in 2002. In 1997, the average U.S. cotton farm was 420 acres according to the U.S. Department of Agriculture. A 'boll buggie' machine dumps cotton into a module builder. The module builder compresses and wraps about 17,000 pounds of cotton into a single unit. After the modules are built, they can sit in the field for weeks waiting to be ginned without incurring significant damage from wind and rain. Southern Texas: Cotton modules await transport to the cotton gin. Texas is one of the largest cotton-producing states in the country, behind California and Arizona. Elimination of U.S. subsidies may not increase cotton prices worldwide. A 2003 study by Texas Tech economists found that an initial rise in the world price would stimulate production in countries like Brazil, where mechanized farms are ready to expand and the price would fall back to near current levels in 10 years.

Categories of Fundamental Values- Hadit

First draft of the moral mind - human "firmware" and the sources of intuition: harm/care: Moral foundation and compassion for less fortunate. fairness/reciprocity: Underlies religions ingroup/loyalty: Able to cooperate, join into groups, tribal psychology(xeonphobia) authority/respect: In group voluntary submission to oppression purity/sanctity: Virtue through control of the body (food has become moralized - suppress carnality) Moral political psychology: -our righteous minds were designed to: 1) unite us into teams 2) divide us against other teams 3) blind us from the truth

Poverty Reduction Strategy Paper approach

For the poorest developing countries in the world, the bank's assistance plans are based on poverty reduction strategies; by combining an analysis of local groups with an analysis of the country's financial and economic situation the World Bank develops a plan pertaining to the country in question. The government then identifies the country's priorities and targets for the reduction of poverty, and the World Bank instigates its aid efforts correspondingly. World Bank International Development Association (IDA) distributes the loans to eighty poorer countries. Wealthier nations sometimes fund their own aid projects, including those for diseases.

Alan Manne and Tjalling Koopmans Markets and Prices

General-equilibrium models consist of market clearing conditions. A commodity is a general term that includes goods, factor of production, and even utility. Market clearing conditions in a general equilibrium model relate supply and demand. Prices exhibit complementary slackness with excess supply.

Collier - Cardinal Utility and Social Welfare

Given a utility function u() we can define social welfare W as the average of individual utilities: W(C)=W(c1,c2,...,cn)=∑nh=1U(ch)n where u(.) is an increasing function. It can be assumed that there is the diminishing marginal utility of consumption- more consumption makes an individual better off at a decreasing rate. An extra $1 of income means more to a poor person than a rich person.

Welfarist Approach

Given enough income, the household is assumed to know best how to deploy these resources, whether on food, clothing, housing, or the like. When divided by the adult-equivalent number of household members, this gives a per capita measure of consumption expenditure or income. Of course, even household expenditure or income is an imperfect proxy for utility; for instance, it excludes potentially important contributors to utility such publicly provided goods or leisure.

The Welfarist Approach

Given enough income, the household is assumed to know best how to deploy these resources, whether on food, clothing, housing, or the like.When divided by the adult-equivalent number of household members, this gives a per capita measure of consumption expenditure or income. Of course, even household expenditure or income is an imperfect proxy for utility; for instance, it excludes potentially important contributors to utility such publicly provided goods or leisure.

first fundamental theorem of welfare economics

Given that consumers' preferences are well-behaved, trading in perfectly competitive markets implements a Pareto-optimal allocation of the economy's endowment.

Impressions from Nepal: Girls and Boys (1977)

In 1977, most 8+ year old girls spent their days looking after their younger siblings: Young boys, particularly those from lower castes, spent their days watching their fathers work:

Climate Change

In 2017, Bank President Kim announced the World Bank would no longer finance fossil fuel development, however a 2019 article by the International Consortium of Investigative Journalists found that the World Bank continues "to finance oil and gas exploration, pipelines and refineries,"that "these fossil fuel investments make up a greater share of the bank's current energy lending portfolio than renewable projects".

Collier- Benthamite Welfare

In Bentham's approach, maximizing the social welfare means maximizing the total income of the people in the society, without regard to how incomes are distributed in society. It does not distinguish between an income transfer from rich to poor and vice versa. If an income transfer from the poor to the rich results in a bigger increase in the utility of the rich than the decrease in the utility of the poor, the society is expected to accept such a transfer, because the total utility of the society has increased as a whole.

Social Paternalism

In Bentham's world, the state is the morally responsible vanguard, and citizens are absolved of responsibility as moral characters. Example: high-rise public housing and freeways, both of which could be argued to increase c. Both of these interventions faced resentment, as they destroyed communities which gave meaning to peoples' lives.

Calibrated linear supply function

In calibrated equilibrium models we can use a reference price, reference quantity and an elasticity of supply to define a linear supply function. That is, we can rewrite our supply function as: Qr= ̄Qr(1 +ηr(p+sr/ ̄pr(−1)) where: ̄Qr is the reference supply quantity ̄pr is the reference supply price ηr is the price elasticity of supply Note that when p+sr= ̄pr,Qr= ̄Qr.

Rawlsian Social Welfare

In contrast to the strictly utilitarian formulation, the max-min or "Rawlsian" social welfare function (based on the philosophical work of John Rawls) measures the social welfare of society on the basis of the welfare of the least well-off individual member of society: W= min(c1,c2,...,cn) Here maximizing societal welfare would mean maximizing the income of the poorest person in society without regard for the income of other individuals.

The Policy Issue cotton

In the benchmark equilibrium, the US subsidizes cotton exports, thereby raising the domestic price of cotton (increasing producer surplus) and depressing the world market price of cotton. The purpose of this computational exercise is to assess the impact of changes in the US export subsidy rate.

The Blind Men and the Elephant - John Godfrey Saxe (1816-1887)

Indostan men go to see elephant

There Are Many Pareto-Efficient Allocations

It must be noted that a situation where someone holds every good and the rest of the population holds none, is a Pareto efficient distribution. However, this situation can hardly be considered as perfect under any welfare definition.The welfare-possibility frontier illustrates trade-offs.

Consumption versus Income Measures of Poverty: Income ("potential") CONS:

Likely to be underreported May be affected by short-term fluctuations (for example, the seasonal pattern of agriculture) Some parts of income are hard to observe (for example, informal sector income, home agricultural production, self-employment income) Link btwn income and welfare is not always clear Reporting period might not capture the average income of the household.

trade in competitive markets

Look at budget constraints graph 14 exchange so at the given prices p1 and p2 there is an -excess supply of commodity 1 -excess demand for commodity 2 Neither market clears so the prices p1 and p2 do not cause a general equilibrium. So this PO allocation cannot be achieved by competitive trading: since there is an excess demand for commodity 2, p2 will rise since there is an excess supply of commodity 1, p1 will fall The slope of the budget constraints is -p1/p2 so the budget constraints will pivot about the endowment point and become less steep. At the new prices p1 and p2 both markets clear; there is a general equilibrium trading in competitive markets achieves a particular pareto-optimal allocation of the endowments, this is an example of the first fundamental theorem of welfare economics

The Budget Constraint Equation

Mh= rkKh + vNh + wLh + Transfers − Taxes M F Effective monetary income Kh Capital income (e.g., draft animals) Nh Land Lh Labor

Myths of the 1 Percent (Rothwell in TheUpshot)

No other OECD nation is as unequal as the US, and none have experienced such a sharp rise in the 1% share of national income. Except Russia.

Life at $2 per Day Takes a Toll

Of the roughly twenty members of the Syange bridge crew, three are still living. In 1977, most of them were 25-30, and they are now 65 to 70. Nepal Hills: Development through Remittances

Collier- The Appeal of Ideology

Offers the seductive combination of moral certainty and all-purpose analysis - a confident reply for any social or economic problem. •17th century religious fundamentalism •19th century Marxism •20th century Fascism and Objectivism Entering the 21st century, most ideologies had faded and lost adherents.

Feasible Allocations

One feasible allocation is the before-trade allocation; i.e. the endowment allocation.

What is poverty and how do we measure it

Poverty is a pronounced deprivation in well-being. Three views of poverty: i) Resources sufficiency. Typically measured by whether income is above a threshold. A monetary threshold is the most conventional definition ii) Consumption or health outcomes. Typically focus on food, shelter ,health care or education. Two commonly employed health metrics are: •Stunting: low height for age, is caused by long-term insufficient nutrient intake and frequent infections. •Wasting: or low weight for height, is a strong predictor of mortality among children under five. It is usually the result of acute significant food shortage and/or disease. iiiCapability to function in society. Broader interpretation of povery suggested by Sen (1987). Poverty refers to a lack of capabilities, income or education. It manifests in insecurity, low self-confidence, sense of powerlessness, absence of rights - e.g. freedom of speech.

Haughtonand and Khandker- how do we measure poverty?

Poverty is typically defined as an indicator of welfare such as income or consumption per capita. Information on welfare is derived from survey data. •Household surveys require attention to detail and insights from theory of statistical sampling. •The World Bank-inspired Living Standards Measurement Surveys (LSMS) feature multi topic questionnaires and strict quality control. The flexible LSMS template is widely used.

How do we measure poverty? what is it typically defined as:

Poverty is typically defined as an indicator of welfare such as income or consumption per capita. Information on welfare is derived from survey data. •Household surveys require attention to detail and insights from theory of statistical sampling. •The World Bank-inspired Living Standards Measurement Surveys(LSMS) feature multitopic questionnaires and strict quality control.The flexible LSMS template is widely used.

investment is financed from three sources:

Private savings, S Government budget surplus (T-G) Borrowing from the rest of the world (M-X)

World Bank President 1968-1981

Robert McNamara From 1974 to 1980 the bank concentrated on meeting the basic needs of people in the developing world. The size and number of loans to borrowers was greatly increased, as loan targets expanded from infrastructure into social services and other sectors. McNamara implored bank treasurer Eugene Rotberg to seek out new sources of capital outside of the northern banks that had been the primary sources of funding. Rotberg used the global bond market to increase the capital available to the bank.One consequence of the period of poverty alleviation lending was the rapid rise of Third World debt. From 1976 to 1980, developing world debt rose at an average annual rate of 20%.

cotton production in africa

Sogossagasso, Burkina Faso: A woman harvests cotton with her baby tied to her back. Over 80 countries produce cotton, with China the leading producer and America second. African nations account for between 10 and 15 percent of world cotton exports. Some other cotton producers are Egypt, El Salvador, Greece,India, Iran, Laos, Pakistan, Uzbekistan, Turkey. Gomparou, Benin: Villagers harvest cotton by hand. In nearby Mali, a group of about 25 pickers, paid $1 a day each, might pick 2,500 pounds of cotton a day. At least 10 million people in west and central Africa are dependent on cotton for their livelihoods. The crop constitutes between 40 and 60 percent of exports for Mali, Burkina Faso, and Benin in 2004, Natien, Mali: Cotton farmers take a break from organizing the harvest. West African farmers claim U.S. subsidy programs fund the overproduction of cotton that is driving the global market price lower. But, in West Africa, price support mechanisms also exist. Mali's farmers were subsidized 3 U.S. cents per kilogram in 2001 to 2002. Nearby Benin, with a 5 cent subsidy, halted price supports at the behest of the World Bank. Gomparou, Benin: Bottles of pesticides sit in a field of cotton. Farmers in Benin have difficulty affording pesticides and herbicides, which can potentially increase the yield of their crop significantly. Koniko, Mali: A group of children who just finished picking cotton for the day bring their harvest back to their village by donkey cart. West African cotton farms visited by the journalists were typically 8 to 10 acres, significantly smaller than their U.S. competitors. Natien, Mali: Cotton farmers weigh their harvest and combine their shipments into a large truck bound for the cotton gin. In 2004, the International Cotton Advisory Committee (ICAC) projected that cotton prices would increase by 11 cents per pound, or 26 percent, in the absence of U.S. subsidies. Based on this figure, Oxfam International calculated that Mali, Burkina Faso, and Benin together lost 8 to 12 percent of their export earnings to U.S. subsidies in 2001. Badialadaga, Burkina Faso: Cotton farmers and their families have some fun jumping into piles of cotton. In the last 20 years, cotton has been a success story for the region. Profits from cotton are helping improve local schools and roads, but with cotton constituting between 40 and 60 percent of exports for Mali, Burkina Faso, and Benin in 2004, price fluctuations can have a significant impact. In the last 5 years, the price fell to less than 40 cents and rose to nearly 80 cents a pound.

Bretton Woods

The World Bank was created at the 1944 Bretton Woods Conference, along with the International Monetary Fund (IMF). Although many countries were represented at the conference, the United States and United Kingdom were the most powerful in attendance and dominated the negotiations. Harry Dexter White and John Maynard Keynes were the "founding fathers" of both the World Bank and the International Monetary Fund (IMF). White was the senior American official at the conference, and reportedly dominated the conference and imposed his vision over the objections of John Maynard Keynes, the British representative.

Aggregate Expenditure

The circular flow demonstrates how GDP can be measured in two ways. Total expenditure on final goods and services, equals the value of output of final goods and services, which is GDP.

Take Away Message mules

The introduction of new technologies improves the well being of individuals, particularly those who are consumers of goods produced in the impacted sector. Any change in relative prices can produce pecuniary externalities, and therefore technical change may be beneficial in aggregate but harmful for specific individuals, particularly with geographic heterogeneity.

Elasticity of Substitution

The key point is that σ measures the willingness to substitute one good for another. When σ >>1 and increase in the price of one good leads to an increase in demand for the other good and a decrease in demand for the good which is more expensive.When σ≈0 and increase in the price of one good causes demand for both goods to fall.

Market efficiency and maximization of the social surplus

The market equilibrium (Q∗,P∗) features consumer's surplus ∆ABC, producer's surplus ∆DBC, total surplus ∆ADC. The loss in social surpluswhen output level is reduced fromQ∗toQ1is shaded.

Schooling is now Big Business in Nepal

The most significant change in Nepal since 1977 has been the issuance of passports to all Nepali citizens. In 1977, the King was fearful of foreign influences, and passports were only issued to Gurkha soldiers or Managitraders. These days, virtually every able bodied man from the hills is working abroad, and families have a strong incentive to obtain this skills required for landing a good job.

Calibrated Demand

The own-price elasticity of demand (r<0) is defined as:r= % change quantity/ % change price= ∆Dr/Dr/∆(p+sr)/ ̄pr and a demand function can be calibrated to match a reference price-quantity pair: D(p,sr) = ̄Dr(1−|r|(PD/ ̄PD)−1)

circular flow diagram explained

The rest of the world buys goods and services from us ,X, and sells us goods and services, M. Net exports are X−M. The financial value of net exports is known as current account balance or the trade surplus. This value represents the amount that rest of the world borrows or lends, depending on whether net exports are positive or negative.

parts of the Core

The set of Pareto-improving reallocations Pareto-optimal trades blocked by B Pareto-optimal trades blocked by A marked by the lines outside the core

Opportunity Set

The set of consumption bundles that are affordable. •PxX + PyY <M.

Market Rate of Substitution

The slope of the budget line •-Px/ Py

Investment Finance (cont.)

We can see these three sources of investment finance by using the fact that aggregate expenditure equals aggregate income. Start with an equation which relates the value of output to the value of factor (labor and capital) earnings and tax revenue. C+S+T=C+I+G+ (X−M). Then rearrange to obtain I=S+ (T−G) + (M−X) Private saving S plus government saving (T−G) is called national saving.

Cotton Production in the United States continued...

Western Tennessee: Most cotton farmers advertise the type of genetically modified seed types they grow by putting signs in their fields. U.S. farmers worry that if more cotton production moves overseas, there is the prospect of new, unregulated genes developed overseas being used in crops that will be eaten or worn by American consumers. Subsidies, they argue, are the price Americans have to pay for a safe and secure supply of food and fiber. EasternArkansas: Cotton modules sit outside agin in Arkansas ready to be processed. In the United States, farm subsidies have been justified for many years by the goal of maintaining American self-sufficiency in food and fiber. Tchula,Miss.: An employee of the Holmes Gin Company adjusts a setting on the gin machine. The machine separates the fibers of cotton from the seeds. The machine makes about 500 bales in 12 hours, and about 60,000 bales a year. Memphis,Tenn.: Employees at the U.S. Department of Agriculture classing office use machines to measure fiber length, length uniformity, fiber strength, micronaire (fineness),color grade and trash content. The office graded about 2.8 million bales of cotton this year, or about 25,000 bales of cotton a day, in 2004. Tchula, Miss.: A forklift organizes bales of cotton in the cotton warehouse of the Holmes Gin Company. One 500-pound bale can make 215 pairs of jeans, 1,217 men's T-shirts or 313,600 $100 bills, according to the National Cotton Council of America. In 2000, U.S. farmers produced 17.2 million bales, the Council reports.

Feasible rellocations

all points in the box, including the boundary, represent feasible allocations of the combined endowments

Pareto-Improvement

an allocation of the endowment that improves the welfare of a consumer without reducing the welfare of another is a Pareto-improving allocation Since each consumer can refuse to trade, the only possible outcomes from exchange are Pareto-improving allocations. -this is located in the space between W1a and W2b

equilibrium model- consumers

backwards graph, y axis is on right side (import good (M)) and x axis is domestic good (D) line is Q=f (M,D) curved line consumer line: U(M,D) curved line upward facing producer line: pD/pM

Pareto-Optimality

divergence between "better for consumer A and better for consumer B" A is strictly better off but B is strictly worse off if they move closer to Y axis, both A and B are worse off if they move further way from Y axis both A and B are worse off

Trade in competitive markets

each consumer is a price-taker trying to maximize her own utility given p1, p2 and her own endowment For consumer A: p1x1A+ p2x2A =p1w1A +p2w2A So given p1 and p2, consumer A's net demands for commodities 1 and 2 are: x*1A-w1A and x2*A-w2A For consumer B: p1x1B+ p2x2B =p1w1B+p2w2B x*1B-w1B and x2*B-w2B

Consumption versus Income Measures of Poverty: Income ("potential") PRO:

easy to measure given the limited number of sources of income measures degree of household "command" over resources (which they could use if they so wish) Costs only 1/5 as much to collect as expenditure data, so sample can be larger

simple random sample

every member of the population has a known and equal chance of selection

Three Identities

exhaustion of product budget balance market clearance

Justifications for Measuring Poverty

i) Keep poor people on the agenda."A credible measure of poverty can be a powerful instrument for focusing the attention of policy-makers on the living conditions of the poor". ii) Target interventions. One cannot help poor people without knowing who they are. Poverty profile sets out the major facts, so these can be correlated with geography, community characteristics, household characteristics, iii) Design policies. Policy design demands that we predict the effects of and evaluate policies and programs designed to help poor people. iv) Evaluate institutions. Poverty reduction goals are central to institutional objectives for the World Bank, the FAO and even theOECD

A few guidelines for typesetting graphs:

i. Use vector rather than raster graphics - i.e., do not put a bitmap image from someone else's paper in your paper. ii.Include axis labels which include units where relevant. iii.Include a figure title, typically as the figure caption in your document rather than in the chart itself. iv.Choose solid, dash, dot, dot-dash line types which can be distinguished when your paper is printed in black and white. v.Include a self-explanatory key. vi.Use a font which matches the text of the paper. vii.Place x-axis labels "low" when they otherwise intersect lines in the chart. viii.Include a data source footnote with a URL if appropriate. ix.When appropriate include a short, single-space paragraph explaining the graph so that the figure can be interpreted independent of your paper.

Stiglitz: Three ways forward

i.Double down on the Washington consensus ii.The new protectionism iii.Fair globalization and shared prosperity

Topics in 2018 Dataset

i.Economic Policy & Debt ii.Education iii.Environment iv.Financial Sector v.Gender vi.Health vii.Infrastructure viii.Poverty ix.Private Sector & Trade x.Public Sector xi.Social Protection & Labor

world development 2018

i.Economic Policy & Debt ii.Education iii.Environment iv.Financial Sector v. Gender vi.Health vii.Infrastructure viii.Poverty ix.Private Sector & Trade x.Public Sector xi.Social Protection & Labor

second fundamental theorem

implemented by competitive trading from the endowment w.

budget balance

implies that household income (from capital and labor earnings) equals the value of household consumption and savings: Y= K + L= C + T + S

Market Clearance

implies that the value of domestic production= the private consumption, investment, public demand, and net exports: Y= C + I +G + (X-M)

Exhaustion of product

implies that the value of production (net intermediate sales) is exhausted by factor payments: Y= K+ L

supply profit

in between p and q0

Poverty is distinct from inequality and vulnerability

inequality focuses on the distribution of attributes, such as income or consumption, across the population. vulnerability is defined as the risk of falling into poverty, primarily as a result of shocks such as drought, a drop in farm prices, or a financial crisis.

opportunity cost

is the value of the best-forgone alternative opportunity cost of a purchase includes more than the purchase price but all of the costs associated with a choice. The conversion of costs into dollar terms, while sometimes controversial, provides a convenient means of comparing costs

Economic reasoning and analysis

it is often helpful to break economic effects into pieces •A common strategy is to examine the effects of a change in relation to "other things equal," that is, assuming nothing else has changed, which isolates the effect of the change. "Ceteris paribus" means"other things equal." •Economics frequently models the choices that people make by assuming that they make the best choice for them. People in a model are known occasionally as "homo economicus." Homo economicus is entirely selfish. The technical term is acting in ones self-interest. •Self-interested behavior is also described as "maximizing behavior,"where consumers maximize the net value they obtain from their purchases, and firms maximize their profits. •Once one has made a significant nonrecoverable investment, there is a psychological tendency to invest more, even when the return on the subsequent investment isn't worthwhile, known as the sunk cost fallacy. •Economists reason with models. By stripping out extraneous details, the model represents a lens to isolate and understand aspects of the real world.

Equilibration

look at Marshall 16 pg 20/66 •The quantity supplied of a good or service exceeding the quantity demanded is called a surplus. •If the quantity demanded exceeds the quantity supplied, a shortage exists. •The equilibrium price is the price in which the quantity supplied equals the quantity demanded. •The equilibrium of supply and demand maximizes the total gains from trade.

Direct entitlements and poverty

look at image Without markets, which households are poor?

A change in direct entitlements

look at image Loss of productive capacity⇒poverty

Food aid or some other transfer

look at image Transfers can alleviate poverty

Cobb-Douglas preferences

look up equation

Initial endowments and equilibrium trade flows

look up picture -poorer people work as porters -mules lower wages -mules increase welfare for most but not all

A Simple Model of the Global Cotton Market

marshall pg 56/66 The demand and supply functions employed in the model are linear, hence: Qr(p,sr) =ar+br(p+sr) and Dr(p,sr) =αr−βr(p+sr)

Adding preferences to the box

more preferred, goes up turn W1b upside down and connect the intersection points of both W1a and W2b, this is the box

Definitions of incidence

tax incidence on consumers is the amount by which the buyer price, PD, rises over the non-tax equilibrium price,P∗, ; the tax incidence on producers is the amount by which the seller price, PS, falls below P∗.The total tax wedge equals the sum of the tax incidence on the buyer and on the seller. The shares depend on the elasticities of demand and supply. The tax incidence is larger in the less elastic side of the market.

circular flow chart (GDP 15, page 17/23)

th blue and red flows are the circular flow of expenditure and income. The green flows are borrowing and lending. The sum of the red flows equals the blue flows That is Y= C+ 1 + G + X - M

consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it -the difference between your willingness to pay and the amount you pay is known as consumer surplus. Consumer surplus is the value in dollars of a good minus the price paid.

If government purchases exceed net taxes,

the deficit (G−T) is borrowed from the financial markets (if T exceeds G, the government surplus flows to the markets).

If imports exceed exports,

the deficit with the rest of the world (M−X) is borrowing from the rest of the world.

second fundamental theorem of welfare economics

the first theorem is followed by a second that states that any pareto-optimal allocation (i.e. any point on the contract/contact curve) can be achieved by trading in competitive markets provided that endowments are first appropriately rearranged amongst the consumers. Given that consumers' preferences are well-behaved, for any Pareto-optimal allocation there are prices and an allocation of the total endowment that makes the Pareto-optimal allocation implementable by trading in competitive markets.

economic rationality

the idea that people seek to maximize benefits and minimize costs of goods and services •The principal behavioral postulate is that a decision maker chooses its most preferred alternative from those available to it. •The available choices constitute the choice set. •How is the most preferred bundle in the choice set located?

horizontal sum

the individual demand curves of all consumers in that market

The Budget Constraint

the limited amount of income available to consumers to spend on goods and services

trade improves both A's and B's welfares

this is a pareto-improvement over the endowment allocation. intersection line at the bottom moves to the left

equilibrium model- producers

upside down graph, y= domestic goods (D) x= export good (E) line= x=g(E,D) (curved line) producer line: linear line =Pd/Pe connect E and D through a point going through x line and producer line see more CGE 15

Edgeworth Box diagram

width= W1a +W1b= 6+2=8 height= W2a +W2b= 4+2=6 the dimensions of the box are the quantities available of the goods

Supply Elasticity

ηr=% change quantity/ % change price The elasticity is a dimensionless representation of the slope of the supply curve. For calibrated policy analysis models, the elasticity of supply is a model input. In many econometric exercises, the elasticity of supply is a model output.

Cobb-Douglas and CES are Identical when

σ= 1

Household Poverty Measures

• Define: Rh= real income of householdh, z= poverty threshold (e.g.$1.90 per day) •Poverty gap: gh= max(0,z−Rh) •Number of households in poverty equals the number of households h for which gh>0. •Intensity of poverty increases with g

Models in Economics

•A model is a logical framework •Models can be employed for constructive arguments: •positive: How does the world work? •normative: How should the world work? •Models are commonly used to think about the consequences of policy reforms.

Potential Uses of Pivot Tables

•Ad hoc reporting with "refreshable" summary table reports •Data validation and checking •Web reporting •Data exploration

Changes in Demand and Supply

•An increase in the demand increases both the price and quantity traded. •A decrease in demand implies a fall in both the price and the quantity traded. •An increase in the supply decreases the price and increases the quantity traded. •A decrease in the supply increases the price and decreases the quantity traded. •A change in the supply of a good affects its price. This price change will in turn affect the demand for both demand complements and demand subsitutes. •People react less to temporary changes than to permanent changes.People rationally continue to operate "obsolete" devices until their useful life is over, even when they wouldnt buy an exact copy of that device, an effect called hysteresis. •Short-run and long-run effects represent a theme of economics, with the major conclusion that substitution doesnt occur instantaneously, which leads to predictable patterns of prices and quantities over time.

What is an Excel Pivot Table?

•An interactive worksheet table •Provides a powerful tool for summarizing large amounts of tabular data •Similar to a cross-tabulation table •A pivot table classifies numeric data in a list based on other fields in the list •General purpose: •Quickly summarize data from a worksheet or from an external source •Calculate totals, averages, counts, etc. based on any numeric fields in your table •Generate charts from your pivot tables

Alan Manne and Tjalling Koopmans on models in economics. Alan Manne

•Born 1925 in New York City •Received his AB from Harvard in 1943 (18 years old) •Served on a destroyer in the Pacific during WW II (known as "Plato") •Ph.D. in economics in 1950 from Harvard University. •Graduate research on applications of linear programming to oil refinery operation. •Subsequent research focused on multi sectoral models for development planning, economic equilibrium computation and analysis, greenhouse gas mitigation policy. •Mentored by Tjalling Koopmans at Yale. •Ford Foundation in India, several stays at IIASA in Vienna. •Joined the Stanford Operations Research department in 1967.26

Haughtonand and Khandker- Household poverty measures

•Define: Rh= real income of household h, z= poverty threshold (e.g.$1.90 per day) •Poverty gap: gh= max(0,z−Rh) •Number of households in poverty equals the number of households h for which gh>0. •Intensity of poverty increases with gh

Stiglitz: Benefits of the Global Economic Order

•Despite the discontent and inequities, the world has benefited enormously from the post-World War II global economic order •the world has experienced the fastest rate of global economic growth ever, •successes of emerging markets has helped hundreds of millions move out of poverty - more than 800 million in China alone, constituting a new global middle class. •the rule of law has been an important ingredient in the success of the advanced countries, and likewise for international trade a rules-based system is infinitely better than the law of the jungle.

Recap - Rodrik: The Globalization Paradox

•Dogma among economists and right-thinking members of the political and business elite: globalization is good and more of it is even better. •Anyone who dissents from this orthodoxy is either either ignorant of the logic of comparative advantage or selfishly protectionist. •But what if it turns out that globalization is more of a boon to the members of the global elite than it is to the average Jose?

Budget Constraints

•Endowment sare assets owned or controlled by households (labor,land, . . .•Direct entitlements provide the capacity to produce own subsistence from endowments •Exchange refers to the ability of households to convert their own assets & production into subsistence, typically through markets •Poverty is an entitlement failure of one kind or another.

The Sustainable Development Goals (2016-2030) updates new

•Ensure that all people can enjoy prosperous and fulfilling lives and that progress takes place in harmony with nature; •Foster peaceful, just, and inclusive societies free from fear and violence; and •Mobilize the means to implement Agenda 2030, focused on the poorest and most vulnerable, through strong global partnership.

Sobering Statistics in the Advanced Countries

•For more than a quarter century the incomes of most Americans have been stagnant. •A decent job with decent wages, a modicum of security, a home and funds to send kids to college, while saving for retirement has become increasingly out of reach. •Alcohol, drugs, and suicide have increase the mortality rate of American middle-age white males, unlike nearly all other countries. Life expectancies of blacks remain even lower. •Middle and working class in Europe have also suffered, as have poor farmers in Africa and India. These are all the victims of "unfair rules of globalization". •Big winners have been the 1% and the new middle class in India and China. •In the developing world, those countries following the American development model have fared worse than countries following other paradigms.

Stiglitz, Growth in Trade: Causation?

•Global trade has increased 50 percent faster than overall economic activity since 1980 •In the United States, imports increased from 10 to 15 percent of GDP over the same period. •Increases in trade resulted partly from the lowering of transportation costs, but also from changes in the rules of the game: Reductions in tariffs (taxes on imports), changes in regulation and other man-made barriers to trade typically which occur through trade agreements. •Advances in communication and transportation technology (cellphones, internet, containerized shipping) have lowered the cost of outsourcing. Walmart and other international firms played an important role.

Rodrik- The Paradox of Globalization

•Globalization will work for everyone only if all countries abide by the same set of rules, hammered out and enforced by some form of technocratic global government, •The reality is, however, that most countries are unwilling to give up their sovereignty, their distinctive institutions and their freedom to manage their economies in their own best interests. Not China. Not India. Not the members of the European Union, as they are now discovering. Not even the United States. •In the real world, argues Rodrik, there is a fundamental incompatibility between hyper-globalization on the one hand and democracy and national sovereignty on the other.

Pivot Table Advantages

•Interactive: easily rearrange them by moving, adding, or deleting fields •Dynamic: results are automatically recalculated whenever fields are added or dropped, or whenever categories are hidden or displayed •Easy to update: "refreshable" if the original worksheet data changes

Success Stories in the Era of Globalization

•It is ironic that the countries that experienced the greatest growth during the heyday of the Washington consensus were Japan, China,South Korea and India. None of these countries embraced free market dogma. •The successful countries in Asia nurtured, protected and subsidized key industries before subjecting them to foreign competition. •All of these countries controlled the allocation of capital and the flow of capital across their borders. •All of these countries flagrantly manipulated their currency and maintained formal and informal barriers to imports. •Rodrik asks: "Does anyone really think that these countries would be better off today if they had played the game, instead, by the Washington rules?"

Collier- The Less Well Educated are in Crisis

•Loss of meaningful jobs to imports and automation •In America, the emblematic heart of capitalism, 76% of white working class is worse off than in 1980. •Particular hardships for older workers, new entrants to the job market •Profound social implications (family disintegration, drugs, violence ,falling life expectance) •Pessimism (lower living standards than parents) •Erosion of confidence in the social safety net "Less educated, toiling provincial residents have replaced the working class as the revolutionary force in society."

Demand and Consumer Surplus

•Many, but not all, goods have the feature of diminishing marginal value the value of the last unit consumed declines as the number consumed rises. •Demand is usually graphed with price on the vertical axis and quantity on the horizontal axis. •Demand refers to the entire curve, while quantity demanded is a point on the curve. •The marginal value curve is the inverse of demand function. •Consumer surplus is represented in a demand graph by the area between demand and price. An increase in demand is represented by a movement of the entire curve to the northeast (up and to the right), which represents an increase in the marginal value v (movement up) for any given unit, or an increase in the number of units demanded for any given price(movement to the right). Similarly, the reverse movement represents a decrease in demand.

Jonathan Haidt Moral-Political Psychology

•Moral Political Psychology •TED Talk •Fukuyama Review Our righteous minds were "designed" to •unite us into teams •divide us against other teams, and •blind us to the truth

Rothwell: Misconceptions on Causes Inequality

•No, it's not trade: A rise in international trade - as a share of G.D.P., measured as either imports or exports using data from thePenn World Tables - is associated with equality, not inequality. The United States imports only a small fraction of the value of its total economy, whereas Denmark and the Netherlands are highly dependent on imports. •Nor Information Technology.: Countries with higher rates of invention - as measured by patent applications filed under the Patent Cooperation Treaty, an indicator of patent quality - exhibit lower inequality than those with less inventive activity. As it happens, tech industries in the United States have contributed just a tiny bit to the rise of the 1 percent, and the salaries of engineers and software developers rarely reach the 1 percent threshold of an annual income of $390,000. •Nor Unions: Unions are thought to redistribute income from owners to workers, but there is no correlation across countries between the change in labor's share of G.D.P. since 1980 and an increase in the income share of the top 1 percent. •Nor executive compensation: Most top earners in the United States are neither executives nor even managers. People in those occupations make up just over one-third of all top earners in the United States. This share has been falling - particularly for corporate executives - and is lower than in many other advanced countries.

The Sustainable Development Goals history

•On September 25, 2015, the United Nations General Assembly formally adopted the 2030 Agenda for Sustainable Development •17 Sustainable Development Goals (SDGs) and 169 associated targets, building on achievements of the Millennium Development Goals, but far wider in scope and ambition. •End poverty and hunger. •Ensure that all people can fulfill their potential in dignity and equality and in a healthy environment; •Protect the planet from degradation and take urgent action on climate change;

Globalization's Discontents (cont.)

•Populists everywhere are giving voice to citizens' discontent with globalization •For years, establishment politicians promised that globalization would make everyone better off. •Economists beginning with Adam Smith (18th century) and David Ricardo (19th centur) assert that globalization could be beneficial to all countries •Why then are so many people in both the developed and developing world hostile to it?

Haughtonand and Khandker- Poverty v inequality Poverty v Vulnerability

•Poverty is distinct from inequality, which focuses on the distribution of attributes, such as income or consumption, across the population. •Poverty is also distinct from vulnerability which is defined as the risk of falling into poverty, primarily as a result of shocks such as drought, a drop in farm prices or a financial crisis.

Economic Development in Recent Decades

•Some major moves from low-income to middle income status occurring, especially China, India, and other countries in Southeast Asia •Some regions going backwards (Africa, until recently?) •Some regions going sideways (or slightly up, e.g. Latin America;Middle East; republics of the Former Soviet Union) •Globalization via distinctive mechanisms within and across regions: •East Asia and China - trade & FDI in manufacturing •India - trade in services •Mexico - trade & FDI in manufacturing, migration & remittances •Central America - migration and remittances, maquilas •Sub-Saharan Africa, Russia, Central Asia: resource booms and busts

Early Years (1944-1974) of the World Bank

•The Bank's role in the world was not clarified until the Marshall Plan went into effect in 1947, and many European countries began receiving aid from other sources. •With competition from the Marshall Plan, the World Bank shifted its focus to non-European countries. •Until 1968, IBRD loans were earmarked for the construction of infrastructure works, such as seaports, highway systems, and power plants, that would generate enough income to enable a borrower country to repay the loan. •Within the IBRD fiscal conservatism ruled, and loan applications had to meet strict criteria •IDA was formed in 1960 to provide soft loans to developing countries

Corruption and Bureaucracy after the Washington Consensus

•The United States Senate Committee on Foreign Relations report criticized the World Bank and other international financial institutions for focusing too much "on issuing loans rather than on achieving concrete development results within a finite period of time" and called on the institution to "strengthen anti-corruption efforts". •It has been argued that the main effect of many development projects carried out by the World Bank and similar organizations is not the alleviation of poverty. Instead the projects often serve to expand the exercise of bureaucratic state power.

Conditionality and the First Loan to France

•The first country to receive a World Bank loan was France. •In return for the US$250 million, half the amount requested, France had to agree to produce a balanced budget and give priority of debt repayment to the World Bank over other governments. •Bank staff closely monitored the use of the funds to ensure that theFrench government met the conditions. •In addition, the United States State Department told the French government that its members associated with the Communist Party had to be removed to qualify, and the French government complied.

market demand and supply

•The market demand gives the quantity purchased by all the market participants the sum of the individual demands for each price. This is sometimes called a "horizontal sum" because the summation is over the quantities for each price .•The market supply is the horizontal (quantity) sum of all the individual supply curves.

Implementation in Excel

•The model consists of an Excel workbook with a few worksheets. •One worksheet (PivotData) contains the Production, Supply and Distribution dataset for 1960 to 2014 from the USDA web site. •Another worksheet (PivotTable) presents the data for a single year. •Model benchmark inputs include base year supply, demand and tax rates. •Model econometric inputs include elasticities of supply and demand in each of the regions. •Model policy inputs include export subsidy rates. •Model equilibrium is defined by a single variable: the world market price of cotton. •A model equilibrium determines supply and demand for each of the regions. •A model equilibrium also determines implied changes in producer and consumer surplus.

The Excel Solver

•The model is solved using the Excel solver add-in. In order to use the model, you may need to add a reference to the Solver VBA add-in functions. •To use the solver we choose our Objective as Balance and choose the "Value of 0" option. •Our only design variable is P, so the only cell we are going to change is P2 (range nameP). •Having specified these items, we click on the Solve button. The model is solved instantaneously, and we are then presented with a dialogue box asking whether to accept the solution. check at pg 65-66 on 16_Marshall

The Model Worksheet

•The model worksheet is displayed below. 63/66 marshall •The market price variable is specified in P2 which has the assigned range name "P". This cell is used to define equilibrium demand and supply values in columns S and T. •The equilibrium values depend on the assigned export subsidy rates in column N. The sum of squares market balance is defined as: ∆ =∑r(Qr−Dr−∆r)2 This is displayed in cell P3. •If, for example, the export subsidy rate is changed, then the model is out of equilibrium and resulting imbalance is displayed in P3.

Returning to Nepal in 1985

•The price of rice in Manang has fallen by 70% •200-300 mules on the trail from Dumre to Manang •Apart from porters working for trekking agencies, almost no porters to be seen on the trail.

Supply and profit

•The supply curve gives the number of units as a function of the price that will be supplied for sale to the market. •Price equals marginal cost is an implication of profit maximization; the supplier sells all the units whose cost is less than price and doesnt sell the units whose cost exceeds price. •The supply curve is the inverse function of marginal cost. Graphed with the quantity supplied on the horizontal axis and price on the vertical axis, the supply curve is the marginal cost curve, with marginal cost on the vertical axis. •Profit is given by the difference of the price and marginal cost. •Supply is negative demand. •An increase in supply refers to either more units available at a given price or a lower price for the supply of the same number of units. Thus, an increase in supply is graphically represented by a curve that is lower or to the right, or both that is, to the southeast. A decrease in supply is the reverse case, a shift to the northwest. •Anything that increases costs of production will tend to increase marginal cost and thus reduce the supply.

World Development Indicators

•This dataset is the primary World Bank collection of development indicators, compiled from officially-recognized international sources. •It presents the most current and accurate global development data, including national, regional and global estimates. •World Development Indicators involves over 200 national statistical offices and others. •Objective is to provide data for monitoring the SDGs. •Statistical community needs to strengthen partnerships with the private sector and other emerging actors for advancing new techniques of data collection, analysis, and use.

4 Major Globalization Trends since 1990

•Trade - middle income countries (MICs) trade and foreign direct investment (FDI) have taken off since the 1980s •Manufactured exports have been very dynamic, particular from China. Service sector exports have had more recent dynamism. •FDI and remittances and been the most important foreign capital inflows. Portfolio flows of capital have been volatile, and aid flows have been stagnant. •Migration and associated remittances have been the dominant globalization phenomena for many countries

Stiglitz: Globalization Benefits Some at the Expense of Others

•Trade agreements were unfair in favor of America and other advanced countries - developing countries were justified in their complaints. •Trade agreements were also unfair in favor of corporations, and against workers whether in the advanced countries or the poorer ones.So the workers in America were also right to complain. •Globalization provides efficiency gains which could have been enough to compensate losers, but the winners were selfish. Successive tax cuts (1997, 2001, and 2003) under both major political parties - aimed at the top, the groups which benefitted the most from globalization.

Stiglitz: Trade Agreements: Unfair to Whom?

•Trump's claim: "In negotiating trade agreements, U.S. trade negotiators got snookered." is simply false. •The problem with US trade negotiations is that the US negotiators asked for was essentially what American corporations wanted: access to cheap labor, without environmental and labor protections. •Threats to move their factories abroad weakened workers' bargaining power at home. •Trade agreements ensured property rights of investments made in developing countries, for this made their threats to relocate their plants in these cheap-labor countries more credible.

Globalization's Discontents

•Twenty years ago the unhappiness with globalization was evident in many parts of the developing world, countries with 85 percent of the world's population but less than 40% of the world's income. •The greatest discontent has been in Sub-Saharan Africa, a forgotten region, with a projected population of 2.1 billion by 2050 and current per capita income equal to 2.5% of that in the OECD states. •Over the past two decades globalization's opponents in emerging markets and developing countries have been joined by the middle and lower classes of the advanced industrial countries. •Trump amplified this discontent and blamed the plight of America's Rust Belt workers on globalization, and the "worst trade deals ever." •Yet the US wrote the rules of globalization, and they run the international organizations that govern it.

When Creating Your PivotTable:

•Understand your data •Ask yourself what you want to know •Remember the rules of where to place data fields: 1 Row Fields: display data vertically, in rows 2 Column Fields: display data horizontally, across columns 3 Data Items: numerical data to be summarized 4 Page Fields: display data as pages and allows you to filter to a single item •Changing the layout takes only seconds, so don't worry about making it perfect the first time •Note: If the field list is hidden, click Show Field List on thePivotTable toolbar.

An Arrow-Debreu Model of the Market for Porters

•Villages (r) are uniformly distributed on a square district. •Commodities (g) are endowed to villages in random amounts. •Representative consumers in each village are endowed with random quantities of goods and unit allocation of time. •Cobb-Douglas preferences extend over consumption of goods (ci) and leisure (`):U(C,`) =`∏gCg •Portering services are required to deliver goods from one village to neighboring villages. •The shadow price of portering services differs on all routes depending on differences in commodity endowments and the availability of porters.

Rodrik's Global Capitalism 3.0

•What does Rodrik offer as an alternative? Is there a middle way? •Key message: the worst thing we could do for the legitimate cause of globalization right now is to push it any further. •Work remains to be done to manage the economic integration that has already developed and to ensure that the benefits become more widely shared. •In "The Wealth of Nations," Adam Smith noted that the division of labor is limited by the extent of the market. •Globalization has offered the prospect of removing all limits to specialization by workers and businesses everywhere in what they do best. •However, in Rodrik's view the extent of the market is limited by the workable scope of its regulation.

Questioning Globalization

•What if most of the benefits of the free flow of goods and capital across borders have already been realized? •What if gains from additional globalization are outweighed by the additional costs in terms of unemployment, reduced wages, lost pensions and depopulated communities? What if global markets, to be widely beneficial, require the kind of global governance structure that does not yet exist and that most people would oppose? •What if it turns out that the countries that have benefited most from free-market globalization are not those that have embraced it wholeheartedly, but those that have adopted parts of it selectively?

The toughest job Historical Context

•Year: 1977 •Profession: structural engineer (new graduate)• Peace Corps Assignment: Local Development Department(Kathmandu) •Objective: design and construct two bridges to complete the Dumre-Manang mule trail

The World Bank is compromised of two institutions:

•the International Bank for Reconstruction and Development (IBRD) •the International Development Association (IDA)

Stiglitz: Global Economic Order

•the global economic order refers to arrangements governing the movement of goods, services and capital across borders •the US was pivotal in the creation of this system after World War II. •as a consequence of the institutions supporting global trade the second half of the 20th century has avoided the hardships of WorldWar and depression •events of the past three years with populist and resurgent nationalist ideologues have reminded us that borders do matter.

Stiglitz: Global Economic Order

•the global economic order refers to arrangements governing the movement of goods, services and capital across borders •the US was pivotal in the creation of this system after World War II. •as a consequence of the institutions supporting global trade the second half of the 20th century has avoided the hardships of WorldWar and depression. •events of the past three years with populist and resurgent nationalist ideologues have reminded us that borders do matter.