Published on 5 Jan 2016
We know that there are rich countries, poor countries, and countries somewhere in between. Economically speaking, Japan isn’t Denmark. Denmark isn’t Madagascar, and Madagascar isn’t Argentina. These countries are all different.
But how different are they?
That question is answered through real GDP per capita—a country’s gross domestic product, divided by its population.
In previous videos, we used real GDP per capita as a quick measure for a country’s standard of living. But real GDP per capita also measures an average citizen’s command over goods and services. It can be a handy benchmark for how much an average person can buy in a year — that is, his or her purchasing power. And across different countries, purchasing power isn’t the same.
Here comes that word again: it’s different.
How different? That’s another question this video will answer.
In this section of Marginal Revolution University’s course on Principles of Macroeconomics, you’ll find out just how staggering the economic differences are for three countries — the Central African Republic, Mexico, and the United States.
You’ll see why variations in real GDP per capita can be 10 times, 50 times, or sometimes a hundred times as different between one country and another. You’ll also learn why the countries we traditionally lump together as rich, or poor, might sometimes be in leagues all their own.
The whole point of this? We can learn a lot about a country’s wealth and standard of living by looking at real GDP per capita.
But before we give too much away, check out this video — the first in our section on The Wealth of Nations and Economic Growth.
March 20, 2017
February 26, 2017
Published on 10 Feb 2017
In the final episode, Lucy debunks the fibs that surround the ‘jewel in the crown’ of the British Empire – India. Travelling to Kolkata, she investigates how the Raj was created following a British government coup in 1858. After snatching control from the discredited East India Company, the new regime presented itself as a new kind of caring, sharing imperialism with Queen Victoria as its maternal Empress.
Tyranny, greed and exploitation were to be things of the past. From the ‘black hole of Calcutta’ to the Indian ‘mutiny’, from East India Company governance to crown rule, and from Queen Victoria to Empress of India, Lucy reveals how this chapter of British history is another carefully edited narrative that’s full of fibs.
February 10, 2017
… my bathroom book (bathroom books are essays or short stories, because if you have never gotten trapped by a novel someone had forgotten in the bathroom and lost the entire morning as well as all circulation in your legs, I can’t explain it to you) is a Daily Life In Medieval England thing. And most of the time I read something that I’m sure the authors thought was new and exotic and think “Well, heck, it was like that in the village.”
Which brings us back, through back roads to the main point of this post. I was (being evil) reading some of the entries in the medieval life book to older son (having brought the book out of the bathroom to pontificate) and I said “bah, it was like that for us, too. It wasn’t that bad.” And son said “mom, it sounds horrific.” And I said “that’s because you grew up in a superabundant society, overflowing at both property and entertainment, which is why the problems we suffer from are problems that only affected the very rich in the past” (Crisis of identity, extreme sensitivity to suffering, etc.)
Which is also true. And note kindly, that though we’re overflowing at the seams with material goods, property crimes we still have with us, not counting on anything else.
But for my child this is the normal world and it doesn’t occur to him to think of it as superabundant. He just thinks of the conditions I grew up under (I think it was the “most people only had one change of clothes, including underwear” that got him) as barbaric and horrible.
I’ve long since realized that I grew up somewhere between medieval England and Victorian England. Tudor England feels about as familiar to me as the present day which is why I like visiting now and then.
Sarah A. Hoyt, “Time Zones”, According to Hoyt, 2015-06-23.
January 11, 2017
British Labour Party leader Jeremy Corbyn just proposed a salary cap for professional football (that’s “soccer” to us benighted colonials on the other side of the pond) in the UK:
Is there nothing Jeremy Corbyn can’t screw up? This week his advisers whispered to the press that their leader was about to do a Donald, be more populist, try to connect with the man and woman in the street who might think of him as a bit stiff and aloof and stuck in the Seventies. And how does he kick off this project? By slagging off footballers, the most idolised sportspeople in Britain, cheered by vast swathes of the very people Labour no longer reaches but wishes it could. The money paid to footballers is ‘grotesque’, said Corbyn today, in his best irate vicar voice. Cue media coverage of Corbyn’s moaning mug next to Wayne Rooney (£250k a week, loved by millions). What next in Corbyn’s populist makeover? A call to wind down Coronation St? Close pubs on Sundays? A Twitterspat with Ant and Dec or Sheridan Smith or some other national treasure?
Labour leftists have never understood this basic fact: ordinary people don’t hate rich people. In fact they admire many of them. They don’t wince when they see a footballer and his WAG posing by the pool in Hello! — they think, ‘That looks like a nice life. Good on them.’ Corbyn bemoaned footballers’ pay as part of his proposal to enact a law preventing people from earning above a certain amount of money. Yes, a maximum wage. ‘I would like there to be some kind of high earnings cap,’ he said. It’s the worst idea a British political leader has had in years, and it reveals pretty much everything that is wrong with the left today.
First there’s the sheer authoritarianism of it. It will never come to pass, of course, because Corbyn’s footballer-bashing and bodged populism and general inability to connect with anyone outside of Momentum and the left Twittersphere means Labour won’t be darkening the door of Downing St for yonks. But that Corbyn is even flirting with the notion of putting a legal lid on what people can earn is pretty extraordinary. It would basically be a stricture against getting rich, a restriction on ambition, a state-enforced standard of living: you could be comfortable and middle-class, but not loaded. There’s a stinging moralism, too. Labourites complain about those on the right who look down on the ‘undeserving poor’, but what we have here is not all that different: a sneering at the undeserving rich, a prissy concern with the bank balances and lifestyles of those who’ve made a bomb.
January 8, 2017
November 28, 2016
Walter Williams on the real danger the hyper-rich pose to the body politic:
Microsoft co-founder Bill Gates, having a net worth of $81.8 billion, and Amazon.com CEO Jeff Bezos, having a net worth of $70.4 billion, are the nation’s two richest men. They are at the top of the Forbes 400 list of America’s superrich individuals, people who have net worths of billions of dollars. Many see the rich as a danger. New York Times columnist Bob Herbert wrote, “It doesn’t really matter what ordinary people want. The wealthy call the tune, and the politicians dance.” His colleague Paul Krugman wrote, “On paper, we’re a one-person-one-vote nation; in reality, we’re more than a bit of an oligarchy, in which a handful of wealthy people dominate.” It’s sentiments like these that have led me to wish there were a humane way to get rid of the rich. For without having the rich around to be whipping boys and distract our attention, we might be able to concentrate on what’s best for the 99.9 percent of the rest of us.
Let’s look at the power of the rich. With all the money that Gates, Bezos and other superrich people have, what can they force you or me to do? Can they condemn our houses to create space so that another individual can build an auto dealership or a casino parking lot? Can they force us to pay money into the government-run — and doomed — Obamacare program? Can they force us to bus our children to schools out of our neighborhood in the name of diversity? Can they force us to buy our sugar from a high-cost domestic producer rather than from a low-cost Caribbean producer? The answer to all of these questions is a big fat no.
You say, “Williams, I don’t understand.” Let me be more explicit. Bill Gates cannot order you to enroll your child in another school in order to promote racial diversity. He has no power to condemn your house to make way for a casino parking lot. Unless our elected public officials grant them the power to rip us off, rich people have little power to force us to do anything. A lowly municipal clerk earning $50,000 a year has far more life-and-death power over us. It is that type of person to whom we must turn for permission to build a house, ply a trade, open a restaurant and do myriad other activities. It’s government people, not rich people, who have the power to coerce us and rip us off. They have the power to make our lives miserable if we disobey. This coercive power goes a long way toward explaining legalized political corruption.
October 19, 2016
Published on Sep 23, 2016
A lot of doom and gloom types say we’re living in dark times. But they’re wrong.
While there are real problems, the world has never been healthier, wealthier, and happier than it is today. Over a billion people have been lifted from dire poverty in just the past few decades.
What has contributed to this improvement of our well-being? The answer can be found in the evolution of economic and policy ideas.
But we can still do better. How will we solve today’s challenges and what breakthroughs will spark change tomorrow?
August 17, 2016
For decades I have observed an abuse of charities that I am not sure has a name. I call it the “lifestyle” charity or non-profit. These are charities more known for the glittering fundraisers than their actual charitable works, and are often typified by having only a tiny percentage of their total budget flowing to projects that actually help anyone except their administrators. These charities seem to be run primarily for the financial maintenance and public image enhancement of their leaders and administrators. Most of their funds flow to the salaries, first-class travel, and lifestyle maintenance of their principals.
I know people first hand who live quite nicely as leaders of such charities — having gone to two different Ivy League schools, it is almost impossible not to encounter such folks among our alumni. They live quite well, and appear from time to time in media puff pieces that help polish their egos and reinforce their self-righteous virtue-signaling. I have frequently attended my university alumni events where these folks are held out as exemplars for folks working on a higher plane than grubby business people like myself. They drive me crazy. They are an insult to the millions of Americans who do volunteer work every day, and wealthy donors who work hard to make sure their money is really making a difference.
Warren Meyer, “The Lifestyle Charity Fraud”, Coyote Blog, 2016-08-04.
May 24, 2016
In the Wall Street Journal, economist Deirdre McCloskey pinpoints the launch point of the greatest increase in global human wealth ever seen:
In the 18th century, liberal thinkers such as Voltaire and Benjamin Franklin courageously advocated liberty in trade. By the 1830s and 1840s, a much enlarged intelligentsia, mostly the sons of bourgeois fathers, commenced sneering loftily at the liberties that had enriched their elders and made possible their own leisure. The sons advocated the vigorous use of the state’s monopoly of violence to achieve one or another utopia, soon.
Intellectuals on the political right, for instance, looked back with nostalgia to an imagined Middle Ages, free from the vulgarity of trade, a nonmarket golden age in which rents and hierarchy ruled. Such a conservative and Romantic vision of olden times fit well with the right’s perch in the ruling class. Later in the 19th century, under the influence of a version of science, the right seized upon social Darwinism and eugenics to devalue the liberty and dignity of ordinary people and to elevate the nation’s mission above the mere individual person, recommending colonialism and compulsory sterilization and the cleansing power of war.
On the left, meanwhile, a different cadre of intellectuals developed the illiberal idea that ideas don’t matter. What matters to progress, the left declared, was the unstoppable tide of history, aided by protest or strike or revolution directed at the evil bourgeoisie — such thrilling actions to be led, naturally, by themselves. Later, in European socialism and American Progressivism, the left proposed to defeat bourgeois monopolies in meat and sugar and steel by gathering under regulation or syndicalism or central planning or collectivization all the monopolies into one supreme monopoly called the state.
While all this deep thinking was roiling the intelligentsia of Europe, the commercial bourgeoisie — despised by the right and the left, and by many in the middle, too — created the Great Enrichment and the modern world. The Enrichment gigantically improved our lives. In doing so, it proved that both social Darwinism and economic Marxism were mistaken. The supposedly inferior races and classes and ethnicities proved not to be so. The exploited proletariat was not driven into misery; it was enriched. It turned out that ordinary men and women didn’t need to be directed from above, and when honored and left alone, became immensely creative.
The Great Enrichment is the most important secular event since human beings first domesticated wheat and horses. It has been and will continue to be more important historically than the rise and fall of empires or the class struggle in all hitherto existing societies. Empire did not enrich Britain. America’s success did not depend on slavery. Power did not lead to plenty, and exploitation was not plenty’s engine. Progress toward French-style equality of outcome was achieved not by taxation and redistribution but by the Scots’ very different notion of equality. The real engine was the expanding ideology of classical liberalism.
The Great Enrichment has restarted history. It will end poverty. For a good part of humankind, it already has. China and India, which have adopted some of economic liberalism, have exploded in growth. Brazil, Russia and South Africa, not to speak of the European Union — all of them fond of planning and protectionism and level playing fields — have stagnated.
May 19, 2016
… it is not a bad time to remind ourselves how lucky we are to live on this damp little island.
I don’t mean this in a jingoistic way, and certainly when you look closely there is little to recommend Henry V’s brutal French raid. What there is to celebrate, of course, is Shakespeare’s poetic rendering of the campaign. It is our literary, scientific, technological, economic, political and philosophical achievements, rather than just our military milestones that we should occasionally pause to remember, amid our usual self-criticism.
All my life I have been told that Britain is in decline. But stand back and take a long, hard look. Even by relative standards, it just is not true. We have recently overtaken France (again) as the fifth largest economy in the world and are closing on Germany. We have the fourth largest defence budget in the world, devoted largely to peace-keeping. We disproportionately contribute to the world’s literature, art, music, technology and science.
We have won some 123 Nobel prizes, more than any other country bar America (and more per capita than America), and we continue to win them, with 18 in this century so far. In the field of genetics, which I know best, we discovered the structure of DNA, invented DNA fingerprinting, pioneered cloning and contributed 40 per cent of the first sequencing of the human genome.
On absolute measures, we are in even better shape. Income per capita has more than doubled since 1965 — in real terms. In those days, three million households lacked or shared an inside lavatory, most houses did not have central heating and twice as many people as today had no access to a car. When they did it was expensive, unreliable and leaked fumes.
In the 1960s even though there were fewer people in Britain, rivers were more polluted, the air was dirtier, and there were fewer trees, otters and buzzards. Budget airlines, mobile phones, search engines and social media were as unimaginable as unicorns. Sure, there was less obesity and fewer traffic jams, but there were more strikes, racism and nylon clothing. People spent twice as much of their income on food. There may be political angst about immigrants, but Britain is far more at ease with its multicultural self today than we might have dared to hope in the 1960s.
Matt Ridley, “Britain’s Best Years”, MattRidley.com, 2015-01-01.
April 11, 2016
In a way most of us don’t really understand how differently we live from even a very short time ago. Read the comments in this excellent piece from Sarah Hoyt.
The fact is that right now just about everybody in the Developed nations can afford products that are better and cheaper than anything has ever been made. For instance my car is almost ten years old and has never required major maintenance and the body is as free of exterior rust as when it was new. The computer I’m writing this on is more powerful than ANY computer that you could buy in 1980. The clothes I’m wearing are more durable and sewn better than anything you could buy in 1950. And everything is essentially so cheap that just about everybody can afford it.
The fact is that, because of the constant improvement of manufacturing techniques the difference between the highest quality and lowest quality goods has become essentially nonexistent.
The great gap in lifestyles due to wealth is by and large gone, which begs the question, what can the wealthy buy with their money? The answer isn’t very pleasant.
What they buy is access and power. You don’t have to look much further than Warren Buffett, George Soros or Tom Steyer to see that. Or the Koch Brothers for that matter. All of these people and other have created large influence building organizations for the sole purpose of influencing the rest of us stupid schmucks to do what they want us to. What they want us to do all too often is to give up the liberties and standard of living that our parents and grandparents worked so hard to build and retreat back to a lifestyle that will not compete with our “betters.” Sorry, but I’m not going for that.
J.C. Carlton, “What Can A Billionaire Buy That Most People Can’t?”, The Arts Mechanical, 2016-03-30.
March 30, 2016
In 15 years as governor of New York, Nelson A. Rockefeller, popularly known as “Rocky,” was as careful with the public’s money as he was with his own — which is to say, he spent lavishly, impulsively, and often indiscriminately. New Yorkers have been paying the bill ever since. As portrayed in Richard Norton Smith’s new biography, Rockefeller believed that there was no problem (least of all a lack of cash) too big to yield to a big-money solution. “As much as I loved Nelson,” Smith quotes the financier Frank Zarb, “his meter didn’t start until you reached a billion dollars.”
Rocky’s meter began to spin soon after he became governor of New York in 1959, and it accelerated as time went on. To be sure, every level of American government was expanding during the 1960s and 1970s. But Rockefeller made an outlier of the Empire State. He quadrupled the state budget and quintupled state debt, including off-the-books public-authority borrowing. He created the nation’s most lavish Medicaid program, designed to draw down maximum federal aid to the state while saddling New York City and county governments with half the non-federally reimbursed cost. He pushed through a collective bargaining law that would bequeath to New Yorkers the nation’s highest level of public-sector unionization. Though New York had been a cradle of open-handed liberalism, its state and local taxes, relative to personal income, were slightly below the national average when Rockefeller took office, according to Census data. By 1974, the combined burden had nearly doubled to a level well above the 50-state norm — where it has remained ever since.
Smith demonstrates that Rockefeller’s profligacy was at least as much a matter of personal disposition as political preference. There’s no small irony in this: Rocky’s grandfather, John D. Rockefeller, Sr., built his Standard Oil mega-fortune on penny-pinching attention to detail. As one story goes, even as a wealthy man, “Senior” was delighted to discover he could eke out a slightly larger profit by encouraging his employees to use one less drop of solder on each tin can of Standard Oil kerosene.
E.J. McMahon, “Hiya, Big Spender! For good or ill, Nelson Rockefeller’s legacy lives on”, City Journal, 2014-12-04.
February 16, 2016
February 3, 2016
If you want an illuminating example of the fact that there is more to the way that prices work in a free market than can be captured by the pragmatic calculations of cold-eyed util-traders, consider the luxury-goods market and its enthusiastic following among people who do not themselves consume many or any of those goods. One of the oddball aspects of rich societies such as ours is the fact that when people pile up a little bit more disposable income than they might have expected to, they develop a taste for measurably inferior goods and outdated technologies: If you have money that is a little bit obscene, you might get into classic cars, i.e., an outmoded form of transportation; if your money is super-dirty obscene, you get into horses, an even more outmoded form of transportation.
Or consider the case of fine watches: Though he — and it’s a “he” in the overwhelming majority of cases — may not be eager to admit it, a serious watch enthusiast knows that even the finest mechanical timepiece put together by magical elves on the shores of Lake Geneva is, as a timekeeping instrument, dramatically inferior to the cheapest quartz-movement watch coming out of a Chinese sweatshop and available for a few bucks at, among other outlets, Wal-Mart. (To say nothing of the cheap digital watches sold under blister-pack at downscale retailers everywhere, or the clock on your cellphone.) But even as our celebrity social-justice warriors covet those high-margin items — and get paid vast sums of money to help sell them, too — they denounce the people who deal in less rarefied goods sold at much lower profit margins.
If economic “exploitation” means making “obscene profits” — an empty cliché if ever there were one — then Wal-Mart and the oil companies ought to be the good guys; not only do they have relatively low profit margins, but they also support millions of union workers and retirees through stock profits and the payment of dividends into pension funds. By way of comparison, consider that Hermès, the luxury-goods label that is a favorite of well-heeled social-justice warriors of all sorts, makes a profit margin that is typically seven or eight times what Wal-Mart makes, even though, as rapper Lloyd Banks discovered, its $1,300 sneakers may not always be up to the task. If Wal-Mart is the epitome of evil for selling you a Timex at a 3 percent markup, then shouldn’t Rolex be extra-super evil?
Kevin D. Williamson, “Who Boycotts Wal-Mart? Social-justice warriors who are too enlightened to let their poor neighbors pay lower prices”, National Review, 2014-11-30.
January 29, 2016
One of the obvious points being made, as is now traditional, concerning the great wealth of the Walton family, those inheritors of Sam Walton’s cash and stock. It’s not actually all that difficult to get people riled up about a store paying an average of $8.80 an hour (for non-supervisory staff) when the people who own the company have some $150 billion in wealth. However, that’s not actually the correct response. And insisting upon a change in public policy so that some of that wealth is paid to those workers, or that it should be taxed away in some manner, would be very much the wrong answer. For, you see, those Waltons actually deserve that $150 billion: we should be absolutely overjoyed that they have it in fact.
So, we get $250 billion a year and the Waltons, the inheritors of the man who started it all off, get $150 billion. We get more than they do: that sounds like a pretty good deal really. Except that is of course to grossly overstate what they are getting. That mountain of cash they’ve got is not an annual figure: that’s the capital value, their wealth, not the income from one year. Our benefit is what we save in one year. That value of WalMart stock is the net present value of everything that WalMart is expected to make in profits from now until eternity (although obviously we use a discount rate so that something 40 years out is given less importance than something next year). So we need to adjust our $250 billion figure in the same manner to make the two numbers comparable.
The easiest way to do that is simply to ignore discounting and to also impose a 20 year time limit. Neither assumption is correct but it’ll give us a nice rough and ready guess at the capital value to us all of those annual savings. And the answer if we do it that way is that the current value of WalMart’s existence to the rest of us is $5 trillion. That’s the number that is comparable to that $150 billion family fortune. They’re both the net present values of future income streams which does indeed make them comparable even if that value to us is calculated in a much simpler manner than the way the stock market values WalMart.
At which point it looks like we’re getting a massive bargain. We get $5 trillion and the people who made it happen only get $150 billion? Why aren’t we cheering in the streets over this rather than demonstrating in them about how awful it all is?