so let's get started so each chapter will have four or five videos you know five to six minutes and you know I recommend watching them I'll try to add a little bit to each chapter and of course definitely read the chapter either before you watch the videos or after you watch the videos so what is chapter one all about it's really about trying to understand how different the last 300 years are compared to what happened before all right so this is a measure of GDP per capita basically GDP is all the value of everything we produce in a year and GDP per capita just takes that number and divides it by the population and so this has it for five different countries Britain Japan Italy China and India and you can see that up until about 1650 1700 everything was just flat right there was really no increase in GDP per capita until about 1700 maybe 1650 in Britain and so the question that we're going to try to ask and answer in these first two chapters is how did that happen and what was the role of capitalism what was the role of Technology what were the role of the various institutions that government's put in place and another thing that we're going to talk about is the fact that some countries grew earlier than others and what can countries do to try to catch up to the richest countries like Britain and Japan or the United States so what we'll talk about in this chapter we're going to talk about economic inequality and divergence we'll see that with growth we see also a big increase in inequality both across countries and within countries we'll talk about the role of Technology and how that impacts growth and then the role of capitalism and what we'll see is that capitalism and Technology really work together in order to provide the right incentives for an economy to grow and we'll also see that the government plays a key role in making sure a capitalist economy has the right institutions in order to grow and but also that there is a number of different ways that governments have been put in place in order to manage growth and make things more or less equal so this is a picture of income inequality at three different years for all countries and what you can see well we'll walk through this in a separate video down below but what you can see is that even in 1980 most of the world was still very poor right and so what we have is along the horizontal axis we have the poorest country - the richest country right so China and India are down here the United States and Norway are up here and then going backwards along the z axis is inequality within the country so you can see in China there was not a lot of inequality within the country because there were really no rich people whereas in the United States in 1980 there already were a fair number of rich people and so there was more inequality but even the poorest were in a much better position than in a really poor country like China in India in 1990 countries more countries started to grow and by 2014 a lot of countries that started to grow and so you can see that the richest people in a lot of countries had really started to get higher income but this poor in those countries were still quite poor one of the biggest differences between 1980 and 2014 is where China is right so you can see China is now a middle-income country whereas in 1980 they were a poor country and we'll talk about some of the institutions that China put in place in order to help themselves grow so if we look at you know a thousand years ago the world was flat and basically before that the world was still flat there were some relatively rich people right so the kings and Nobles and emperors etc but there wasn't a huge amount of difference between Europe and Asia and Africa and meme Ericka's today there are big differences between countries in those places and there's big income inequalities within those countries too right so we have some people who have astronomical incomes and wealth and that's gonna be one of the things that we're going to explore in in this class so we can think about the hockey stick diagram is that flat income that then increases alright so we're going to talk about that some and so income really didn't start to grow if we think of GDP per capita as one measure of a living standard in a country right it's not the only measure it's not necessarily to the best measure but it's one measure for a very long time those didn't grow and we'll see in chapter two that you know an economist named Thomas Malthus said it can't grow it's impossible unfortunately he was writing it right at the time that it was starting to take off so he is remembered as someone who was right for the past but wrong for the future like a lot of us are then we started to grow right the UK really started first in the middle of the 17th century then other places in Western Europe the United States Japan other countries have only started to grow recently right so India and China are the two biggest examples but we have the other East Asian Tigers places like Taiwan Indonesia Thailand are all starting to grow and but other countries have still struggled so a lot of sub-saharan Africa for example is still relatively flat so how do we measure income and living standards well the main measure that we're going to talk about in macroeconomics is gross domestic product and that's a measure of everything that we produce in an economy in a given year and so we usually express it in per capita terms because that's the best way to compare countries right so we can compare country with 320 million like the United States with a country that has over a billion people like China and India will also talk about disposable income right so disposable income is really what matters to the household which is how much market income they have - how much they have to pay in taxes plus whatever they get in government transfers right it could be Social Security payments unemployment benefits food stamps all of that stuff would be government transfers they're both measures of well-being or living standards they're both imperfect and we're going to talk about both of them in more detail and things they do measure and things they don't measure so let's talk about GDP first so when we measure GDP for a given year we measure something called nominal GDP when we say something is nominal we mean that it's value is measured in current prices and so now though GDP basically is saying all right well what are all the things we sold what was the price for all of those things let's multiply the price times the quantity and add it all up and that gives us nominal GDP so you can see the equation here and GDP equals the sum that Sigma means some of the price times the quantity for all of the goods and services which could be you know thousands and thousands of goods and services right the problem with nominal GDP is that it can go up or down either because quantities change which is usually what we're interested in or because prices have changed and price is changing is what we're going to call inflation but when we're looking at GDP we'd like to control for that and so what real GDP does anything we say is real and macroeconomics means that we're controlling for the price change we're controlling for inflation and the way we do that is that we choose a base year and we use the prices from that year in calculating real GDP so if we're using 2010 as our base year for example then we'll use you know for calculating 2013 GDP leaves 2013 quantities how much did we produce of 2013 but we'll use 2010 prices and that way when we're comparing GDP in 2012 and 2013 we know that any change is due to a change in output rather than a change in price because we're controlling for the prices so that allows us to control to compare real GDP across time right we can see is real GDP per capita going up in the United States is it going down like it doesn't a recession it doesn't do a great job in allowing us to compare across countries and so in order to compare across countries we want to use a price level where the same price will buy the same amount of good or service right so in some places housing is more expensive in some places food is more expensive we'd like to try to balance that out and so often when we're looking at cross-country comparisons we'll use something called purchasing power parity prices or PPP prices and that allows us to better compare say GDP per capita in the United States with GDP per capita in France or China or Japan so one of the little pieces of math that we will do in this class there's not a whole lot of math in this class but there is a little bit is calculating growth rate and so we want to know by what percent did something grow and so we're going to do that for GDP we're gonna do it for inflation but this works for anything right if you're a biology major you might want to calculate how much the bacteria and the Petri you screw if you're a demographer you might want to calculate the percent growth of population in a city so if there's any variable X the percent change is just the change in X right or this year XT minus last year XT minus 1 divided by last year XT minus 1 and then sometimes we multiply that by a hundred just to put it in percentage terms so let's do a quick example here so in the second quarter of 2016 real GDP using 2009 dollars so it's real GDP not nominal GDP was fifty one thousand five hundred eighty dollars and that had grown to 52 thousand two hundred ninety six dollars in the second quarter of 20 17 so remember that measures all of GDP how much we produced in that year divided by the population and so if we want to do the growth rate we just do the value of 2017 minus the value in 2016 divided by the value in 2016 so that's fifty two thousand two hundred ninety six minus fifty one thousand five hundred eighty divided by fifty one thousand five hundred eighty or seven hundred and sixteen divided by fifty one thousand five hundred and eighty which gives us zero point zero one three eight eight which is one point four percent so what we see is that you know these GDP growth rates really started to take off now let's look at this graph this is the same graph we looked at before but with a slight difference so now on the vertical axis instead of having a linear scale which is what we're usually used to where each distance represents the same value now we have what's called a ratio scale or logarithmic scale where each distance doubles the value so we start at 250 we go to 500 then we double to a thousand we doubled to two thousand we doubled to four thousand etc and the benefit of a logarithmic scale is that a straight line gives us a constant growth rate and so we can see that you know there was some significant differences before about 1650 Japan was the poorest country Italy was the richest country and you know China and Britain were somewhere in the middle and then around 1650 Britain really started to grow and then Italy started to grow and then Japan started to grow and then it's only really in the last you know fifty to a hundred years and really specifically in the last 30 to 40 years that China and India have started to grow so keep in mind whether you're looking at a ratio scale on the vertical axis or a linear scale so the timing of growth is both interesting and gives us some clues about what's necessary for growth we can see that Britain started to go around 1650 we'll talk about that or in Chapter two in Japan it started around 1870 and in China India it happened you know more recently in the second half of the 20th century in a lot of places you know that we're under colonial rule that has hindered their growth with you know a couple possible exceptions and you know others are interference by either European or American countries has also sort of slowed growth in some areas and so we'll talk about that later as well