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98 Cards in this Set
- Front
- Back
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Outlines of Economic Growth Over History
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1500 - 1800 there is minimal economic growth
1800s: Some income disparity (UK > China), Pre 1800: Stuck in Malthusian Trap. Tech Advances = Pop Growth Post 1800: Escape Malthusian Trap into Demographic Transition. First West, then rest. 1820's+ the Great Divergence in Income Disparity |
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Social Conflict
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Universal - all decision involve winners and losers. ex: SS reform, Free trade, tax changes
Groups with political power will use distortionary power. Consequentialist: Agents only care about econ. outcome, not policy per se. |
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Aggregation of Preferences
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Choice of voting order provides control of the agenda.
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Lack of Commitment
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Ex-Ante (forecasting) statements hold no weight. Humans try to find ways to make people commit (constitutions) which are inflexible and lead to suboptimal outcomes.
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Factor Price Manipulation
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Those in power tax middle-class producers to reduce the prices of the factors (labor) they use in production. Elite stacks the deck against others.
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China in 1405
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Advancement: Large naval fleet, richest and most tech. advanced and populated country. Easy to farm.
Unified in 221 BCE, mostly unified after. Standardized characters. |
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Europe in 1405
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Half as big as China in population. Not unified since Rome in 476 CE.
Geographically dispersed in core areas. Different alphabets, languages. |
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Limitations of Power in Middle Ages Europe
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Kings surrended power for stability by showing (ceremonial) respect for "traditional liberties" and laws.
Kings gave way to parliaments in exchange for elites' help in raising taxes, fighting wars. |
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King Alfonso De Leon
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First King to create parliament in 1188. He almost went bankrupt fighting Portugal and Castile. Offered parliament that would be consulted before on matters pertaining to war/peace, protecting property rights, and due process.
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Magna Carta
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In 1215 King John was weakened after defeating France. Barons of England repudiated their allegiance in a ceremony called diffidation. Created parliament + an enforcement mechanism that allowed them to seize royal property (never done). First constitution in England.
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Agricultural Innovation
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Supplied extra calories which led to doubling of population in Europe between 1000 and 1300.
Heavy Plow, Horse Equip., Pitchfork, Irrigation |
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Energy Innovations
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Waterwheel: West. Europe has plenty of streams/rain to keep them full all year.
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Information Technology Innovations
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Modern Printing Press: 250 page book went from $10,000 to $35. Uniformity of text. Developed oil based ink (better than water based). "Quantum leap in transmission of info."
Econ Impact debatable but DITTMAR found evidence that cities with press grew faster. |
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Daily Life Innovations
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Beer Brewing
Time Measurement |
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Innovation in Cloth
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Silk and Cotton
Spinning Wheel |
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Innovations in Finance
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Widely circulated checks, insurance contracts, futures and option.
Accounting Luca Pacioli recorded all existing mathematical knowledge. |
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Technology that Improved:
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Guns and gunpowder - canons on ships.
Navigation instruments: Astrolabe, nautical charts, three-mast ship made sailing safe and cheap. |
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Why did Europeans begin voyages of Exploration
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Interactions between Atlantic and Mediterranean led to innovation.
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Why did Europeans begin voyages of Exploration II
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Required relatively little military commitments
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Portugal's reasons for beginning voyages:
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Poor and small, only option was to explore overseas. North Africa offered meager profits.
Africa became a source of gold and slaves for sugar cane plantations in Brazil. Spice Trade in Asia (Vasco de Gamma frist to round point of South Africa) |
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Dutch's reasons for beginning voyages:
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Portuguese ran enterprise poorly, leaving trade open. They used their long tradition of maritime trade to be competitive in Asia.
Had good, reliable ships and good cost cutters. Since 1568 the United Provinces had been in revolt against Portugal - patriotism & profit! |
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Act of Abjuration (July 26, 1581)
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Independence was declared in the United Provinecs and a highly participatory political system was created.
Dutch Republic had high social mobility, limited nobility, tolerant & inclusive political system. |
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Dutch East India Company (VOC)
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First multinational corporation to avoid competition amidst Dutch merchants. High prices and profits allocated among regions.
Set up outposts but limited impact on culture. |
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Britain's reasons for beginning voyages:
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Organized a more successful fiscal-military state
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France's reasons for beginning voyages:
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No empire, slow to respond to exploration.
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Spain's reasons for beginning voyages:
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Took risk to fund Columbus' voyage because cost was small, upside large, and under pressure to compete in Asia against Portuguese.
Created inflation in Europe, wasted money. |
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Why Didn't China Conduct Voyages? |
Pacific Ocean is Larger than Atlantic Currents and Tradewinds were in Europes' favor Unitary rule in a massive country made intra-state competition unecessary |
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Demographic Transition |
Transition from a period of high birth and death rates to low birth and death rates. Resulted from better agriculture, tech, healthcare, education, contraception, urbanization. |
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Malthusian Trap |
19th century Thomas Malthus stated that the world would outgrow its means to feed itself. People can grow exponentially, food is finite. World broke out of the trap through the agricultural revolution in Britain/Holland when income per person dramatically increased. Breaking out can cause political upheaval. |
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Discovery of the potato (application of Malthusian Trap) |
From 1000 to 1900 population grew from 300m to 1.6b due in large part? to potato, high in calories, vitamins and nutrients. Can be grown in between growing seasons. Malthusians would say +Ag = -Prices, = +kids. However, led to people being able to afford moving to cities. |
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Acemoglu, Johnson and Robinson's view on Geography and Institutions |
Declining mortality has led to rising population growth and slowing per capita income growth. Health impacts economic growth through institutional development, including property rights & checks and balances. Hostile health = extractive regimes with minimal investment. |
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Why do extractive regimes persist? |
Setting up non-extractive regimes are expensive, so once they are in place they tend to stay that way. The gains to an extractive strategy depends on the size of the ruling elite (fewer is better). Once investments have been made in regimes they tend to be nearly irreversible. |
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Horizontal Geography traits |
Similar climate conditions and economic development |
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Vertical Geography traits |
Wide differences in climate, health and natural impediments. |
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The Little Ice Age |
Took place 1500-1750, Europe bore the brunt. Shortened growing seasons, increased grain prices, fewer taxes. Bubonic plague hastened by malnutrition. Led to rise of the potato. |
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Portuguese Colonial Empires |
First global empire and longest modern European colonial empire (1415-1999)
Are now part of 53 sovereign states. Established multi country trading system. Africa: gold, ivory. Arab: slaves, sugar. Asia: Spices. Americas: Cane. Decline started during 60 year union with Spain (Iberian Union) were attacked by those against Spain and small country couldn't defend itself. |
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Spanish Colonial Empires |
Peak of power during Spanish Habsburgs from 16-18th century. Golden age of Spain (16-17 century). Spain was dependent on foreign resources (sugar, gold, silver) |
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Dutch Colonial Empires |
Colonial Empires from 1600-1950's. Second half of 17th century was the Dutch Golden Age. Had efficient access to capital. Amsterdam Stock Exchange Market is oldest modern security exchange market, 1602. |
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British Colonial Empires |
Followed Spain and Portugal and established in the Americas and India. Consolidated during 19th century British maritime hegemony. After victory over Napoleon, dominated world trade. Accounted for half global trade: cotton, silk, dye, tea, opium. Largest empire in history (1/4 land/population) |
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Why did land empires stagnate? (Russia, Ottomans, Persia, China, Japan) |
Struggled with local nomads Growth was due to acquiring land Entered into international trade and struggled with European powers, becoming isolated or colonized. |
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Russia |
Beat the Mongol-Tatars in the battle of Kulikovo (1380) by Prince Donskoy. Big authoritarian state emerged and acquired land, including Siberia (10% of furs). Muscovy Trading Company traded furs, timber |
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Ottoman Empire |
Ottomans created military force by joining Turks and Christians from Anatolia. Inherited political structure from Byzantines. Great expansion (1300-1683) but deteriorated quickly after. Dominated trade in Eurasia. |
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Ottoman Empire Collapse |
Fell behind in technology Bayezid II in 1485 prohibited arabs from printing in arabic. No printing press until 1727 and even then tightly controlled by religious authority and legal scholars. |
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Persia |
Safavid Dynasty lasted from 1501-1722. Invasions damaged irrigation and never recovered. Constant battles with Ottomans. Government in 1616 couldn't raise cash, troubles with gold and silver overall. |
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Mughal Empire |
Created by Babur. Empire had constant conquests, used cash taxation based on productivity of land. Economy declined after 1707 due to costly wars, repeated raids, and disruptions in internal power dynamics due to trade. |
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Ming & Qing China |
Maintained power through meritocratic exams and strong, organized civil service. Eventually added bureaucracy leading to inefficiency. Weakened by incompetent monarchs and peasant rebellions. Could not rally popular support when needed or conduct reforms. |
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Qing Dynasty (1644- 1912)
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Fast expansion into the south led by the Eight Banners military organizations. Faced a period of complacency after historical extension. Was 40% of world population. Opium wars detrimental to China. |
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Tokugawa Japan |
Growed in 1600's when Tokugawa Samurai won a battle and rules Japan for 2.5 centuries. No foreigner could enter and Japanese could not leave. Persecuted Christians. Pros: Japan was at peace, + rice production, farming, avoids colonization. Cons: technology gap widens. |
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Civil Service Exams and Institutions in Imperial China: |
Unified cultural identity and dialects. Included empire-wide rotations. Adopted standard monetary system with central budgeting system. Issues included double principal agent problem - gov didn't trust bureaucrats so created layers. |
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How did Europe improve income per capita? |
First Britain, then Europe. Costs of capital and energy < cost of labor, leading to productivity. Industrial revolution increased work hours, merchant ships. |
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Glorious Revolution |
1688, English Elite overthrow James II by William III with an Army financed by Amsterdam. |
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Bill of Rights 1689 |
Parliament is elected and meets frequently. Can create laws, controls army, freedom of speech should not be questioned. Limited power of monarch. Created Bank of England (1694) |
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Patent System of England |
Was a high engine of growth. |
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Glorious Revolution |
1688-1689 - Charles tried and failed to rule without parliament. Parliament peacefully ousted the King and imported a new protestant King. |
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Second One Hundred Years War |
France opposed Glorious Revolution and went to war, ultimately losing (1688-1815), leading to the French and American Revolution.
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Britain's Financing during Glorious War |
Public debt was held by the parliamentary elite. Didn't want to damage their own assets so they were much less likely to default. |
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Why was revolutionary technology usually created in Britain and not elsewhere? |
Parliament could raise more debt. Spend on navy promoted economic growth. Increased literacy and urbanization helped. |
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Why did Industrial Revolution primarily occur in Western Europe? |
Archaic institutions could have held other countries back until Napoleon exported exported liberalizing reforms. Other countries had lower wages and higher energy costs makes labor cheap versus innovation. |
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Manufacturing during Industrial Revolution |
Became more productive in US and Europe and moved there due to technology. Markets integrated, competition increased, and these markets could outperform others due to tech. |
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Growth of United States Economy |
Tech leader: internal combustion engine, electricity, petrochemicals, aviation, $$ R&D Pre & Post WWII: Tech developed in Europe. After federal funding critical in US (now specialty firms). Strong anti-trust policy, large market, education |
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Growth of German Economy |
Universal primary education by middle of 19th century, railways integrated markets, strong investment banks, early customs union with Prussia in 1818 |
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Japan Economic Growth in Tokugawa Period |
Closed capital per worker, education per worker and productivity gaps. Post WWII econ. planning done by Min. of Int. Trade and Industry (MITI). Began to focus on heavy, capital intensive industries like metallurgy and chemicals. Highly efficient globally. |
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China Economic Growth |
Had weak banks and state played a key role. Tech improvements increased the employment of labor. Western machinery designed for high wage economies had to be re-engineered. Productivity increases: Just in Time, 2 11 hour shifts |
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Lessons from ICT Revolution
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U.S infrastructure better prepared to innovate General Purpose Technology (GPT) like electricity, |
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Stagnation in China |
Absence of dynamic inter-state competition due to the precocious rise of a centralized state. SMITH: State prohibition on foreign trade and insecurity of private property. MALTHUS: Universal marriage = high fertility and low income per capita. |
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California School |
Productivity and living standards in both sides of Eurasia. China's legal system was comparable and property was secure. China's family system kept population rate low. Industrial Revolution only happened in Europe because of access to coal reserves and gains from globalization. |
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Industrial Revolution drove Asians out of business because: |
Manufacturing became cheaper/more productive in Europe. Steamships and Railways made international competition more intense. Asia & Middle east forced into agriculture to the detriment of their long-run benefit. |
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How USA and W. Europe competed with Britain |
Universal Education, external tariffs, process improvements, |
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Stagnation in India |
Colonial Institution, subservient position drained resources. Railways/Telegraph seen as exploiting Forced commercialization: British not incentivized to invest in productivity. Perilous Commercialization: Shift from food to non food crops intensified famines. |
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Views of British Rule in India |
Colonialism always means underdevelopment. No foreign trade and statism. Railway was run by british so didn't promote Indian industry. India did not pursue traditional development strategies (tariffs, investment banks, universal schools) to go from ag. to industry. |
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Growth Miracles in India and China |
China: Capital deepening led to investment rate >40% GDP. TFP growth from tech/efficiency. India: Productivity surge, but lower capital investment, strengthened by reforms in 90s, especially services. |
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Industrial Policy (Picking Winners) |
Gov should avoid favoring industries. Private sector will allow the same with more benefits. Gov can be helpful with broader policies (institutions, sponsoring science foundations). Exceptions: Taiwan/Korea. (Homogeneity, size, external threats) |
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Industry specific policies (picking winners II) |
Bad results because they lead to diversion of resources in some way. includes tariffs, favorable loans, forced mergers. Allen's Rise & Decline of Soviet Economy argues they squandered resources through inefficient industries. |
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Positive Role of Gov in Development: |
Rosenstein-Rodan: Big push model says underdeveloped economies require large investments, small is counter productive. Hirschmann: Forward linkages are created when a project encourages investments in subsequent stages of production. Ex: Steel |
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Negative Role of Gov in Development |
Bauer sought to convince that central planning, tariffs, foreign aid and price controls perpetuate poverty rather than eliminate it. Heavy handed approach limits democratic institutions. |
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Nationalism in Germany |
Germany in 1914 - Small elite in Germany/Austria-Hungary trigger WWI due to extreme nationalism. Germany pre WWII: Hitler infiltrates Workers Party |
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Nationalism around the world:
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Ataturk in Turkey Sun Yat-Sen overthrows Qing dynasty in 1911. |
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Soviet Economic History |
Allen challenges that Soviet socialism was a failure from the start. USSR grew rapidly due to accumulating capital. Emphasized heavy industry with hard targets. Issues: collectivization lowered GDP, investment, consumption and population. Growth rate dropped in 70's. |
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Soviet Economic History II |
Cold War diverted R&D to military End of surplus labor economy (needed to improve productivity) Diminishing returns on capital (Weitzman) Wasteful projects by politicians (Siberia), self sufficiency |
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How we could have saved the USSR: |
Focus on reduction in energy use and industrial materials, increased involvement in world trade, and focus on high productivity jobs. |
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World Economy during WWI |
WWI marks end of century of economic growth and currency stability. Created de-globalization. Wartime expenditures led to rampant inflation. |
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World Economy post WWI |
Conflicts over German reparations affected monetary policy, trade relations and capital flow during the 20's. Germany went into hyperinflation: high unemployment, low wages, massive shortages |
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Stalin's 5 year plans |
Started in 1929, was a huge experiment in centrally controlled economies. Costs to population were great, but Russia became an industrial producer. USSR became isolated from world trade. |
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Great Depression |
Hits the US in 1929, goes until 1933. Fed was inexperience lender of last resort, no federal deposit insurance. Trade dropped dramatically, protectionism +++ Cannot have fixed exchange rate capital mobility and independent monetary policy - pick 2 |
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Gold Standard |
Exit from gold standard led to change in inflationary expectations and higher interest rates. |
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Post WWII Reconstruction |
Dollar was reserve currency & fixed to gold. Fixed exchange rate with 1% fluctuation band. Ability to revalue/devalue. IMF and World Bank loans given to restructure / development. |
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1950's Economy |
Fast and stable growth |
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1960's Economy |
Gold shortage, tensions between France & US
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1970's Economy |
Nixon shock in 1971 Era of free floating exchange rates. |
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European Economy 1945 - 1973 |
Golden age brought on by convergence with US. Post war was able to adopt innovations. Strong institutions whose incentives aligned with growth. State involvement ++ GDP growth rates that exceeded growth rate over past 2 cent. Rise of European Union through its predecessor |
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Post 1973 Economy |
Slowdown, especially US/W Europe and E. Eur. Realized that state control bad at innovation |
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Taiwan/South Korea Growth Story |
Growth in 60's focused on exports and business friendly policies. Had educated labor force and equality in income leading to limited divergent interest groups Rate of Return to coordinated investments high so gov coordinated subsid. private investments |
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Defensive Modernization |
Countries interested in modernization to defend themselves. (Taiwan v China, S Korea v N Korea) |
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Ethnic Homogeneity |
Easier to enact redistribution policies when there is a homogeneous population. LatAm ill suited for redistribution. |
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Dutch Course (Natural Resources) |
Politicians fight over distribution of wealth and don't create new products. Argentina's civil war in 19th century was BA versus provinces. |
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Keys to succeeding with natural resources: |
Separate income from politics Use income sustainably (sovereign wealth fund) |
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Why Nations Fail |
Extractive Institutions - small group exploits pop Growth must enable creative destruction Need centralization to provide justice, contracts, education Destroyed by neighbors. Competition key. |
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Allen |
Global Economic History (geography, globalization, tech role in economy) |
