Economics 113 Slides J. Bradford Delong http://bradford-delong.com - - PowerPoint PPT Presentation

Economics 113 Slides

• J. Bradford Delong

http://bradford-delong.com brad.delong@gmail.com @delong 2017-01-23 KNT: https://www.icloud.com/keynote/ 0LrGo9XoEQ-6Plw4xIs8hEe6Q#2017-01-23_Econ_113_Slides

Outline

• Office Hours
• Tools: Analyzing Growth
• iClickers: Analyzing Growth
• Background: Economic Growth: The Bird’s-

Eye View

• Assignment: Letter to GSIs
• Background: This Is Berkeley

Office Hours

• Scheduled: Evans Hall 691A: M 3:30-4:30

pm; W 11-12 noon

• By appointment: email

delong@econ.berkeley.edu

• By internet (depending on your course):
• 113: <https://bcourses.berkeley.edu/

courses/1456905/discussion_topics/ 5127644/>

• 115: <https://bcourses.berkeley.edu/

courses/1456906/discussion_topics/ 5109740>

• 210a: <https://bcourses.berkeley.edu/

courses/1456907/discussion_topics/ 5130849>

• 210b: <https://bcourses.berkeley.edu/

courses/1456908/discussion_topics/ 5127924 >

Tools: Analyzing Growth

• Economics gives us numbers: prices and

quantities over time

• Proportional growth—compound interest
• The time over which some growth process

takes place

• The rate at which growth (or shrinkage) takes

place

• The amount that the variable grows to
• T, g, y… with little t standing in for any

potential moment

• Don’t get snowed! Accurately assess how

important or consequential things are!

Listen to Richard Feynman

“An analogy…. The Maya Indians were interested in… Venus…. To make calculations, the Maya had invented a system of bars and dots to represent numbers… and had rules by which to calculate and predict not only the risings and settings of Venus, but

• ther celestial phenomena…. Only a

few Maya priests could do such elaborate calculations…. Suppose we were to ask one of them how to do just one step in the process of predicting when Venus will next rise as a morning star—subtracting two numbers….. How would the priest explain?….

Listen to Richard Feynman II

“He could either teach us the… bars and dots and the rule… or he could tell us what he was really doing: ‘Suppose we want to subtract 236 from 584. First, count out 584 beans and put them in a pot. Then take

• ut 236 beans and put them to one side.

Finally, count the beans left in the pot. That number is the result….’ You might say, ‘My Quetzalcoatl! What tedium… what a job!’ To which the priest would reply, ‘That’s why we have the rules…. The rules are tricky, but they are a much more efficient way of getting the answer…. We can predict the appearance of Venus by counting beans (which is slow, but easy to understand) or by using the tricky rules (which is much faster, but you must spend years in school to learn them).’”

The Uses of Math: Al-Khwarizmi

Muḥammad ibn Mūsā al- Khwārizmī (c. 780-850)

• Al-Kitāb al-Mukhtaṣar fī

Hisāb al-Jabr wa’l-Muḳābala

• The Compendious Book on

Calculation by Restoration and Balancing

• Worked in Baghdad at the

House of Wisdom established by the Kalif Al-Mamun

The Uses of Math: Newton

Isaac Newton (1642-1727)

• Philosophiæ Naturalis Principia

Mathematica

• Mathematical Principles of

Natural Philosophy

• Worked in Cambridge t the

university there

• Arithmetic and accounting
• Algebra and calculus
• What-if machines—ways of doing a

huge number of potential calculations all at once…

Exponential Growth

• (dy/dt) = g(y - a)
• start at t = -500 with y = a + 0.006
• g = 0.01; a = 10
• does nothing for a long time—stays very near 10—then explodes
• y = 10 + exp(.01(t-10))

Exponential Growth

• And keeps on

exploding…

• Rules of thumb

for an annual growth rate g:

• (y-a) doubles

every 0.693/g years

• (y-a) grows a

thousandfold every 6.91/g years

“EXP” “E”

• It’s a function: we feed it a number x, and

get out exp(x) (or E^x)

• We can calculate it:
• exp(x) = 1+x+(x^2)/2+(x^3)/6+(x^4)/24+…
• exp(0)=1
• exp(1)=2.71828182846…
• But we don’t have to…
• Over 1618-1731, Napier, Oughtred,

Bernoulli, Leibnitz, and Euler did it for us…

Exponential Convergence

• (dy/dt) = g(k - y)
• start at t = 0 with y = 0
• g = 0.01; k = 100
• heads rapidly for k
• and then stays there
• (k-y) halves in…
• …guess what? 0.693/g
• (k-y) shrinks to a

thousandth of its initial value in…

• …guess what? 6.91/g

Combine the Two: Logistic Growth

• (dy/dt) = g(y-a)(k-y)/k, for k>>y
• y = a + (k-a)[exp(gx)]/(k-a+exp(gx)-1)
• a is the initial population
• k is the carrying capacity
• g is the unimpeded growth rate (you’ll see this

called “r”)

• Pierre-Francois Verhulst in 1838, building a

mathematical model of Thomas Malthus’ Essay on the Principal of Population

• Rediscovered by McKendrick, by Pearl and Reed,

and by Lotka

Logistic Growth II

Things to Remember

• Asymptote: a (in the negative direction, for growth and

logistic)

• Asymptote: k (in the positive direction, for convergence

and logistic)

• Rule of 72: 72 divided by the growth rate gives you the

doubling (for growth) or halving (for convergence) time

• Rule of 720: Multiply the doubling time by 10 to get the

thousand-fold time

• Why 72? Why not 0.693? 72 is easier to do in your head
• 72 = 36x2=24x3=18x4=12x6=9x8
• If things aren’t continuous but come in steps…

Catch Our Breath…

• Comments?
• Questions?

Analyzing Growth: To Your iClickers…

Something is growing at 6%/

• year. How long (roughly)

does it take to double?

• A. 36 years
• B. 120 years
• C. 12 years
• D. 17 years
• E. None of the above

Something is Growing at 4%/Year

How long (roughly) does it take to multiply a thousandfold?

• A. 54 years
• B. 180 years
• C. 18 years
• D. 250 years
• E. None of the above

Something is Growing at 0.03%/ Year

How long (roughly) does it take to multiply eightfold?

• A. 2400 years
• B. 7200 years
• C. 72 years
• D. 24000 years
• E. None of the above

.72/.0003

Human Populations Grew from 5 to 50 Million between 10 and 3 Thousand Years Ago

Between the invention of agriculture and 1000 BC. Had that pace continued, about what would the human population be now?

• A. 500 million
• B. 7.5 billion
• C. 140 million
• D. 1.4 billion
• E. None of the above

3+ doublings in 7000 years 1 doubling 2000+ years 1.5- doublings since 1000 BC

Catch Our Breath…

• Comments?
• Questions?

Economic Growth: The Bird’s-Eye View: Anatomically Modern Humans

• Anatomically modern humans

—Home Sapiens Sapiens— evolved about 200,000 years ago:

• In the Horn of Africa.
• Omo Kibish remains in

Ethiopia.

• Behaviorally modern humans:
• 80KYrs ago? 50KYrs ago?
• Gradual or sudden?
• Toba (Indonesia) volcanic

supereruption of 75K:

• Did it knock our breeding

population down to 1K—did we almost go extinct?

• Or did about 1K of us gain

key advantageous traits of behavioral modernity, and then out compete the rest?

Behaviorally Modern Humans

• By 50KYrs ago…
• Archaeological evidence of

behavioral modernity:

• Art: cave paintings, petroglyphs,

figurines

• Pigment and jewelry for

adornment

• Bone tools
• Long-distance transport
• Blades
• Hearths
• Regional distinctions but

standardization within regions

• burial

Behaviorally Modern Humans II

• We use language:
• Thus we become an

anthology intelligence.

• What one person

learns, soon everybody knows.

• We make and use tools:
• Complex, composite

tools.

• We are sociable:
• Much more sociable

than our chimp, gorilla, orangutang cousins

• Perhaps less than our

bonobo cousins?

Civilized Sociable Language- and Tool-Using East African Plains Ape

• What would an alien intelligence—vast,

cool, and sympathetic or unsympathetic —say about us?

• Form:
• Mammals with opposable thumbs,

upright posture, and big brains

• Numbers: A lot of us: 7.4 billion now
• Behavior
• Sociable, linguistic, tool-using
• Gossip (about food, threats, mating,

etc.)

• Alter our environment
• Large-scale social division of labor—

greater than seen in the social insects—mediated by markets and exchange

• Gift-exchange

Adam Smith

• Natural propensity to “truck, barter,

and exchange”.

• We form gift-exchange

relationships with those we trust and to create trust—patterns of mutual obligation.

• We have developed money to

create trust between strangers.

• On top of this natural propensity to

develop gift-exchange relationships and the social institution of money- as-trust we have built our largely peaceful 7.4B-strong prosperous societal division of labor.

The Wealth of Nations and the System of Natural Liberty

• Adam Smith's 1776 Wealth of Nations

contains a genuinely game-changing insight:

• The “system of natural liberty”—

markets and exchange—

• Has some remarkable advantages.
• Just let people exchange things freely:
• in an environment in which

property is secure, and

• in which there is an alternative

deal almost as good just down the street, and

• things will work out remarkably

well…

Radiation from the Horn to the Rest of and Out of Africa 50,000 Years Ago?

• “Some 70,000 years ago,

a part of the bearers of mitochondrial haplogroup L3 migrated from East Africa into the Near East…. From a population of 2,000 to 5,000 in Africa… possibly as few as 150 to 1,000 people, crossed the Red Sea…”

• India as their first

apparent stop…

• Then radiation to

Eurasia, Australasia— and then the Americas, Oceania…

Neolithic Revolution 12-10KYrs Ago

• Agriculture and herding:
• Great things for the

generations that discover and introduce them…

• Can easily triple or quadruple

how much food you can gather…

• And that is without making

big investments to further alter the environment.

• Plus: infant mortality goes down:
• No longer carrying babies as

the band moves from place to place.

Literacy Revolution 7-4KYrs Ago

• Agriculture, herding a great thing for the

generations that discover and introduce it…

• And agricultural regions fill up until

population growth… stops…

• Preventative check
• Positive check
• Malthusian Agrarianism—near-stagnation

—as the default state of post-Neolithic humanity?

• Thereafter the pace of technological

improvement is slow…

• But it is at least positive—and there is hope

for something better after 3000 BC, for now it is the case that knowledge—or ideology and lies—can be reliably recorded and transmitted down the years

But Was Agriculture a Good Thing?

• Agriculture, herding a great

thing for the generations that discover and introduce it…

• And agricultural regions fill up

until population growth… stops…

• Preventative check
• Positive check
• Malthusian Agrarianism—near-

stagnation—as the default state

• f post-Neolithic humanity?
• The shift to agriculture possibly

the worst mistake in the history

• f the human race?

High Patriarchy

• During the early Agrarian Age…
• A bigly greater proportion of men rather

than women not leaving descendants…

• Polygyny
• Sustained polygony
• “The sons of Heracles”
• A sign of extraordinary social and

economic inequality

• Within the male gender
• And, of course, between genders
• Then the gender component goes away…
• Polygyny becomes limited to the very

very top…

A Global Ten-Millennia Bird’s-Eye View of It All…

• Linguistic quasi-speciation

100,000 years ago—or Less?

• Radiation from the Horn of

Africa 50,000 years ago?

• Neolithic Revolution 10000

years ago.

• Literacy Revolution 5000

years ago?

• Malthusian Agrarianism—

near-stagnation—as the default state of post- Neolithic humanity?

• Industrial Revolution
• Modern Economic Growth
• Astronomy and the Fermi

Paradox: The Great Filter

Why Malthusian Stagnation in the Agrarian Age?

• Exceptional elites
• Exceptional regions
• Exceptional eras
• European marriage

patterns

• Asian lineage families
• Large-scale female

infanticide

• Otherwise… Malthus

rules

• And people—

inventive people— aren’t that focused on rapid technological development

Malthusian Stagnation as the Default State?

• Look at from 8000 BC to 1500 or

1800

• Enormous increases in population
• But spread out over enormous

lengths of time

• Static living standards for the

most part

• Exceptions:
• Colonization
• Biotechnology
• European marriage pattern
• Asian lineage family pattern
• Large-scale female infanticide

Application to the Malthusian Era, 8000 BC-1500

• Growth of 0.1%/year =

doubling time of 690 years

• Growth of 0.1%/year =

thousandfold time of 6900 years

• We have 1.5 of those

0.1%/yr-thousandfold times since the Neolithic Revolution

• Changes that are

absolutely glacial over a year or a generation do add up

Then We Escape. How Likely Was Escape?

• Malthusian

Agrarian as the default state of post-Neolithic humanity?

• Commercial

Revolution

• Industrial

Revolution

• “Two heads are

better than one” theories

• “Eye of the needle”

theories

Industrial Revolution

• Then at the end of the

eighteenth century comes the Industrial Revolution

• First in the British

Midlands…

• Then spreading: Belgium,

New England, Northern France, Ruhr, Silesia…

• Just another series of

inventions, but lucky enough that coal-steam- rails-cotton had a high elasticity of demand?

• Or a game-changer?

Modern Economic Growth

• Then in the late nineteenth century:

the Second Industrial Revolution

• The transition to Modern Economic

Growth

• Population explosion followed by

demographic transition

• 2%/year productivity growth in the

industrial core…

• Catch-up or not catch-up

elsewhere…

• The origins of large scale

international economic inequality

• The role of migration and trade

Sources of Growth

• Technological advance
• New goods and new types of goods
• Making old goods more cheaply and

efficiently

• Ideas as the ultimate non-rival (and

barely excludible) commodities

• How to manage intellectual property?
• Investment
• In physical capital
• In human capital
• Governance
• Resources
• Resource discoveries
• Resource exhaustion
• Externalities

Why Escape? Why Modern Economic Growth?

• Five important

prerequisites:

• Resources
• Science
• Technology
• A market economy
• Profits to be made

from productive innovation

• Nurturing its continuation

—and noting its fragility— perhaps the most important goal, and the most important lesson

• And here we get into

astronomy and the Fermi paradox

Astronomy and the Fermi Paradox: The Great Filter

• What happens next?
• Finally, since 1970 some

signs of global catch-up

• Robert Gordon’s

predictions of greatly slowed growth

• Where are our flying cars?
• Extrapolating growth
• The Fermi Paradox

Catch Our Breath…

• Comments?
• Questions?

Assignment: Letter to GSIs

• Letter to GSI (1 point)
• Expectations and Background: Before the midnight ending

Wednesday, January 25, 2017, please send a 200- to 400-word email to your GSI. Include your name and your email. Tell us whether, for the purposes of this course, you consider yourself more an economist interested in history or a historian interested in

• economics. And tell us why.
• Include anything about yourself that you would like to share and

believe would help the GSI understand where you are coming from.

• Please attach a photo of yourself.
• If you have trouble with the section-based bCourses links to your

GSI's inbox, you can email your letter to your GSI with "Letter to GSI" in the subject line.

This Is Berkeley: You Are Lucky to Be Here

• This is the University of

California at Berkeley

• Certainly the finest public

university in the world

• Perhaps the finest university in

the world

• Lots of opportunities here
• Others could be in your seats
• They would take advantage of

the opportunities here

• Don’t waste your opportunity

here

You Belong Here

• We go fast here
• We want to teach you a lot
• f stuff
• You can—and should—

handle it

• We are confident you

belong here—can take advantage of the

• pportunities
• We are rarely wrong

An Investment

• This is an investment by the human race
• The value to us of your getting a liberal education
• This is an investment by the state of California
• The value to us of your getting a liberal education
• This is an investment by you in you
• Expected benefits
• Surprise benefits
• A “liberal education”
• The value to you (and us) of a “liberal education”

A Liberal Education a Valuable Thing

• At a $40,000/year

average earnings level…

• 82.2% x $40,000/year

=$32,884/year

• Go to college: invest

$15K/yr (tuition and fees) + $20K/yr (earnings not made) for 5 years = $175,000

• Get an extra $32,884/

year for 40 years if you’re the kind of person who can graduate

• Plus: freedom, depth of

experience…

The Nature of a University

• Never thought this was

necessary before…

• It probably still isn’t

necessary today…

• But this past year has

been a very weird, very norm-breaking year in a lot of ways

• So it is best to be clear on

what we are doing here…

• This is a university…

A University Is a Safe Place for Scholars

• We all belong here
• We all deserve to be treated with

respect

• We all deserve to be listened to
• We all deserve to speak
• We all deserve to be taught how

to listen better

• We all deserve to be taught how

to speak better

• We all deserve to be taught how

to think better

• Don’t set out to diss others
• Don’t diss yourself

Duties to Members of the University

• Harvey Mansfield: “Everyone knows

that C is an average grade…. Grade inflation got started… [when] white professors, imbibing the spirit of affirmative action, stopped giving low or average grades to black students and, to justify or conceal it, stopped giving those grades to white students as well…”

• Harvey Mansfield: “You should keep

your office door closed here. If you don’t, undergraduates might wander in…”

A University Is a Safe Place for Ideas

• The purpose of a university is to

generate, examine, and assess ideas

• It is antithetical for outsiders or

insiders to limit ideas generated

• It is also antithetical not to examine

and assess ideas seriously and honestly

• This is a very delicate balancing act
• what ideas—left to “your

conscience and your god” (Kantorowicz)

• how to treat them—norms of

scholarship

• Cf: http://delong.typepad.com/

delong_long_form/2016/05/the- economist-as-the-public-square-and- economists.html

Scholarly Responsibility: Paul Sweezy

• Paul Sweezy (1953): “In the light of [Stalin's] explanation I

would like to amend the statement… [in a way that] conveys my meaning more accurately than the original wording and is, I think entirely in accord with Stalin's view…”

• Q (1999): “[Your] The editorial after Stalin died in 1953, for

instance, called him one of the greatest men in history…

• Paul Sweezy (1999): “Well, in some ways he was, but he

had his underside, too. I guess one should have been more cautious, but I think you had to take positions which were pretty much unambiguous. Either you were for or against the regimes, the actually existing socialist countries…”

• http://www.bradford-delong.com/2007/10/monthly-

review-.html

• http://www.j-bradford-delong.net/movable_type/

2004_archives/000386.html

Scholarly Responsibility: John Yoo

• John Yoo (2000)
• President Clinton exercised the powers of the

imperial presidency to the utmost… undermine[d] democratic accountability and respect for the rule of law...

• Clinton:
• sought not total victory but only limited

missions.

• placed troops under non-American

commanders.

• ignored the War Powers Resolution
• What does Yoo really believe?
• http://www.bradford-delong.com/2008/05/what-

does-john.html

Loyalty Oaths: Ernst Kantorowicz (1950)

• Three professions… wear a gown: the judge, the priest,

the scholar. This garment stands for its bearer's maturity

• f mind, his independence of judgment, and his direct

responsibility to his conscience and to his God….

• It is a shameful and undignified action, it is an affront

and a violation of both human sovereignty and professional dignity that the Regents of this University have dared to bully the bearer of this gown into a situation in which—under the pressure of a bewildering economic coercion—he is compelled to give up either his tenure or, together with his freedom of judgment, his human dignity and his responsible sovereignty as a scholar…

• http://www.lib.berkeley.edu/uchistory/

archives_exhibits/loyaltyoath/symposium/ kantorowicz.html

Catch Our Breath…

• Comments?
• Questions?
• On to “deep

economic history”