101 lecture 20 income inequality and poverty
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101 lecture 20 income inequality and poverty Presentation Transcript

  • 1. Next Exam ! Exam 6 Thursday December 26 ! Chapters 18, 19, 20 and 21
  • 2. Microeconomics Lecture 20 ! Income Inequality and Poverty
  • 3. The internet is the most powerful idea creation and testing factory
  • 4. Ideas Grow Faster than Population Patents Population 600 Ideas grow exponentially 500 400 300 200 100 0 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
  • 5. The Power of Compounding Rate/ Period 0 1 2 3 4 5 6 7 8 9 10 2% 1.00 1.02 1.04 1.06 1.08 1.10 1.13 1.15 1.17 1.20 1.22 5% 1.00 1.05 1.10 1.16 1.22 1.28 1.34 1.41 1.48 1.55 1.63 10% 1.00 1.10 1.21 1.33 1.46 1.61 1.77 1.95 2.14 2.36 2.59 25% 1.00 1.25 1.56 1.95 2.44 3.05 3.81 4.77 5.96 7.45 9.31 50% 1.00 1.50 2.25 3.38 5.06 7.59 11.39 17.09 25.63 38.44 57.67 100% 1.00 2.00 4.00 8.00 16.00 32.00 64.00 128.00 256.00 512.00 1,024.00
  • 6. The Power of Compounding 1200 Rate/ Period 2 3 4 5 6 7 8 9 10 1.00 1.02 1.04 1.06 1.08 1.10 1.13 1.15 1.17 1.20 1.22 5% 1.00 1.05 1.10 1.16 1.22 1.28 1.34 1.41 1.48 1.55 1.63 10% 1.00 1.10 1.21 1.33 1.46 1.61 1.77 1.95 2.14 2.36 2.59 25% 1.00 1.25 1.56 1.95 2.44 3.05 3.81 4.77 5.96 7.45 9.31 50% 1.00 1.50 2.25 3.38 5.06 7.59 11.39 17.09 25.63 38.44 57.67 100% 600 1 2% 900 0 1.00 2.00 4.00 8.00 16.00 32.00 64.00 128.00 256.00 512.00 1,024.00 300 0 0 1 2 3 4 5 6 7 8 9 10
  • 7. Intellectual Human Entrepreneur Culture Financial Physical
  • 8. What capital was used to create the iPhone? Why wasn’t the iPhone created in Syria?
  • 9. Income is unequal
  • 10. Remember: income must be created before it can be distributed or redistributed
  • 11. Earning Income Who makes it Distributing Income Who gets it ! !
  • 12. Distributing Income Earner distributes it Redistributing Income Government takes from earner and distributes ! !
  • 13. Fairness
  • 14. Fairness is not an objectively determined concept Milton Friedman (1912 - 2006)
  • 15. Fairness Two Definitions
  • 16. Redistributive Fairness It is fair to equalize rewards. Inequality is inherently unfair.
  • 17. Meritocratic Fairness Fairness means matching reward to merit. ! Forced equality is inherently unfair
  • 18. The worst form of inequality is to try to make unequal things equal. ! – Aristotle
  • 19. THE REAL QUESTION is not whether fairness matters it does... but which definition is correct for public policy.
  • 20. Quiz 1. What is Redistributive Fairness? ! 2. What is Meritocratic Fairness?
  • 21. How you slice the pie Culture determines the size of the pie !
  • 22. China switched the fairness definition in1989
  • 23. Quintile Line up by income One-Fifth
  • 24. Income Inequality by Quintile Middle East North Africa (MENA) 50% 45% 45% 40% Percent of Income 35% 30% 25% Perfect Equality 20% 21% 15% 15% 10% 5% 0% 11% 8% Bottom 20% 4th 20% 3rd 20% 2nd 20% Top 20%
  • 25. Poverty Line A level of income set by the government below which is deemed to be in poverty
  • 26. Poverty Rate The percentage of the population living below the poverty line
  • 27. Percent Below Poverty Line Egypt 20 Gaza 70 Iran 18 Iraq 25 Jordan 14 Syria 12 UAE 19 Yemen 45
  • 28. The Income Lifecycle Peak at 50 Earning Varies + $0 Born Level Spending Go to Work Retire Age Die
  • 29. Unadjusted Income Consumption Gap Top 20% to Bottom 20% 15 x After Taxes 14 x Consumption 4x Household Size 2x
  • 30. What percent of millionaires inherited their wealth? 20% Inherited 80% Earned
  • 31. What would you rather be? Rich in poor country or Poor in a rich country
  • 32. Who is richer?
  • 33. Price Drop since 1953 - 90 Percent
  • 34. Price Drop since 1953 - 90 Percent
  • 35. Contact Lenses 1971 95 hours 1997 4 hours - 96%
  • 36. 1954 30,000 SAR 2013 3,000 SAR
  • 37. 2013 vs. 1953 Cell Phone Internet Air Conditioner Jet Travel Medicine Entertainment Car Housing Food Opportunities
  • 38. Your Income Average Income A 100,000 100,000 B 200,000 300,000 C 50,000 25,000 Absolute or Relative?
  • 39. What should the government do about income inequality?
  • 40. Government can make income more equal Distorts incentives Alters behavior Less efficient allocation
  • 41. How much inequality? What can government do? How to help the poor
  • 42. Utilitarianism the government tries to maximize total utility
  • 43. Utility a measure of happiness or satisfaction
  • 44. If you take from the rich and give to the poor both have less incentive to work
  • 45. If you take 25% from the A student and give to the F student both have less incentive to study
  • 46. Libertarianism the government should enforce contracts and punish crimes but not redistribute income
  • 47. Libertarianism the process is more important than the outcomes
  • 48. Libertarianism if the process is just then the outcome is fair regardless of the inequality