|As economist Jeffrey Sachs points out (see Episode Three: Chapter 18: The Global Divide), the world today is more unequal than at any time in human history. To date, only a tiny proportion of the global population has achieved modern economic growth or realized its benefits. This video clip (2:33) provides context for lessons about economic growth by raising two questions about the modern global market economy:
- Does the system deliver the goods?
- Does the system distribute benefits widely?
Economists answer the first question by assessing economic growth -- the increase in economic value created through production and trade.
One measure of growth that economists consider is product, the total value paid for all the goods and services produced in the factories, on the farms, by the service workers, and by all the rest of the participants in a national economy.
But product alone doesn't tell the whole story. We must ask also, how large a share of product is available, on average, to individuals as income? This is another way of saying that the size of an economy must be considered in relation to the size of the population it supports. A large economy that supports a large population may furnish only a low income, and a poor standard of living, to the average citizen.
The second question concerns the distribution of economic value. Is economic benefit evenly shared across society, or do small numbers of citizens keep most of the income? Are the assets of production controlled by a small elite, or does everyone have a stake?
Economic literacy involves understanding three important concepts related to economic growth and distribution (
gross domestic product, per capita income, and the distribution of income) and their relationships to each other and to policy.