Why are we rich?
Last week was mostly about Art. This week is about economic history. Climate games. CSER panel talk. Trust.
Last week was mostly about Art. This week is about economic history. You should read/listen to Mark Koyama and me discuss how the world has become rich. I do have a small thought on how climate games, stories and use of agency can work, and the joy of Coney’s “The Golden Key” adventures in the City of London on Saturday.
Role of trust in the world
How is the world rich?
Climate, theatre, games and a City of London takeover
Links: Farewell Gate Theatre, where I had an award winning play ⦿ The new US vs China chip rules are going to have big consequences. Very unsure how it plays out. The games of big powers ⦿ On resolving paradoxes with ergodic thinking ⦿ Why energy needs to be a mix, and why gas and nuclear are likely part of the solution at least for next 50 years or so ⦿ Profile of Jason Furman ⦿ CSER panel chat ⦿ interactive climate games, Coney.
PWC hosted the Public Trust awards dinner this week. I was a judge this year (as well as last).
This is a modern day example of the strength of institutions. PWC is one of four major accounting and audit organisations (“Big Four”) that together provide the majority of audit and assurance for the largest corporate organisations in the world. (eg 88% of “large accelerated filers” in the US)
These accounting institutions are a small piece of why we have prosperity today. They assure and account for the major limited liability corporations in the world and give this assurance to shareholders and debtholders (which in turn today via pension funds and investments are often the common person in the street) about their financial (and increasingly extra-financial eg carbon accounting) position.
Trusted accounting and trust in general was (and is) a major challenge to solve for world prosperity.
It’s only been in my later life that I’ve been deeply interested in what has made humanity prosperous broadly (and whether we are prosperous at all?). That latter question for many of us is a resounding yes. The wealth of the poorest of us, and the median of us, in many countries was beyond the dreams of people in the 1800s and outstrips the kings and queens of that last 1000 years.
I’m amazed in my younger years I took so much of this wealth for granted even when I travelled through poor countries and had the stories of my forefathers past. Even the idea of a 2 day weekend is a relatively recent invention (forged in part by a rabbi and Henry Ford).
And so more recently - especially when grappling with what will make us even more prosperous in the future (as while we are richer than before, many of us are still very poor) while also not causing undue harm to our environmental systems and the like - I’ve come to study what has made us wealthy and where the ideas of free markets and the like have come from.
You will see this in my podcasts over the last 2 years (eg Diane Coyle on intangible economics and with innovation historian, Anton Howes, Stian Westlake on the intangible economy) I’ve paired this thinking on economic wealth with thinking on social, moral and environmental progress. You will see this in my podcasts with sustainability experts, policy makers and philosphers; as well as artists and creators, disability studies experts.
What makes humanity “progress” in all its forms, why have we got to where we are, and how do we become better.
So I come to my two recent chats. One with Jacob Soll of the history of free markets ideas and my latest chat with economic historian Mark Koyama.
Mark was challenged by Tyler Cowen a while ago on what was the most important question in economic history and Mark replied that the question was what were / are the causes of economic growth ?
Or, in other words, why are we rich?
Why did the UK become the first industrialised nation (why did other nations before this time, not achieve this)
What implications does this have for being rich today?
It turns out until recently scholars disagreed quite a lot about the foundations of the UK industrialisation, but more recently there are several major factors, and Mark and his co-author Jared argue you need all of these factors present - or at least did at the time.
These factors are a mix of:
Representative democracy (so the Crown can't make only selfish decisions)
Energy (coal)
Culture (using Joe Heinrichs work on heuristics)
Institutional capital (organisations that can solve co-ordination problems)
Infrastructure (transport, rail, road, canals)
Geography to an extent, intellectual property
The corporate form (limited liability)
Industrials labs (R&D), globalisation
Many nations before the British had many elements but Britain had them all, and later nations also seemed to have these elements although in more recent times one can argue about the strength of Representative democracy in China and the weightings on some of the factors for Singapore and South Korea may differ. (The last two points are taken up along with ideologies in Brad Delong’s book on economic history from 1870 to 2010).
The median view in the literature also downplays the role of slavery from an economic point of view (though there still is some contestment here).
Still it has been fascinating to me to understand how little we understood until recently about the roots of our progress
Mark is also a scholar on religious tolerance and we discuss the roots of social progress such as abolition of slavery and women's rights and eg the role of the Quakers in abolition.
It may seem that a certain amount of wealth helps, and then a “vision” described by a minority (Quakers, women, race, identity) catches hold in society’s imagination. Or, at least a simple version of this narrative holds. I think of this with respect to climate and disability.
In any event, the book is a very readable introduction and overview on economic history and how many of us are rich today.
Listen/read to the podcast here.
Mark Koyama researches comparative national state economic development and the rise of religious tolerance. He is interested in how historical institutions functioned and in the relationship between culture and economic performance. His 2019 co-authored book, with Noel Johnson, is Persecution and Toleration: the long road to religious freedom and his 2022 book, is on How the World Became Rich, co-authored a book with Jared Rubin. Book link here (Amazon).
I ask why it has taken economists and historians so long to form central views on how we have become rich?
Mark discusses what historic progress might tells us about economic development today.
One part on current policy ideas:
”...We didn't talk about this in the book because we deal with things historically. But I think in a country like UK and many parts of US, planning and housing are the biggest constraints. So I've really subscribed to the housing theory [of everything] where the high price of housing which is constraint largely by planning restrictions is a big problem in terms of getting people to productive areas. So you need to get young workers and ambitious workers and innovative workers to cluster in places like San Francisco or indeed London. If they can't do so, if it's very costly to do so, that's a big drag on productivity.
I think allowing people to match, so allowing people to move to locations where their particular skills are in demand that is crucial. So that's critical. Housing wasn't a central issue in the pre-modern period because it was largely unregulated. So London became a monster. It became a ginormous city fairly early on; like in the 17th century already. There was no vocation whatsoever. People lived in horrific conditions and there was a lot of overcrowding, a lot of negative externalities, a lot of slum housing. That was obviously bad, but it was also good because it allowed productive, ambitious people to come together and work together. You see similar clusters in the industrial revolution in the north of England. I think actually in British economic history, the last major episode of housing building was in the 1930s. That was critical in getting Britain out of the Great Depression.
So that’s something often missed because our understanding of the Great Depression is totally biased by what happened in the United States. But in Britain, housing is crucial in getting people out of the Great Depression. So I think that's what I would emphasize in terms of most important thing that I can currently think of in the modern world. I would also say that in general, adapting our institutions for the new productive technologies is important. So it's in ways it would be intangible economy and having the right institutions which are appropriate for that. I kind of sometimes feel very copyright, and intellectual property right laws are not really best suited to fit the current technological environment we live in.”
I ask about the interaction between the main factors behind economic progress such as: institutions, culture, infrastructure, geography, energy.
I question the role of common law and ask about living constitutions and Mark discusses his reading of the literature and how the UK is relatively unique in its living constitutions.
I query the role of intangibles and the patent system and briefly lay out the case (after Brad De Long) for importance of industrial labs and the corporate form. Mark discusses these factors and their importance from the 1870s but also what was important pre-1870.
We chat about culture (using Joe Henrich’s terms) as a set of heuristics. Mark discusses the literature on the importance and role of slavery (probably not the most major factor in the UK’s industrialization, but still heavily argued), and the role and roots of social progress such as women’s rights.
We cover impacts of war and also the black death from an economic history view and we discuss the challenge on climate.
We play over/underrated on : GDP, carbon tax, representative democracy governance mechanisms, universal basic income.
Mark ends with current projects and advice.
….So podcasts; everything is online basically. The young person who's ambitious and interested can actually get to speed quickly. So you can teach yourself econometrics by watching tons of YouTube videos. Most people won't because there's other stuff to watch on YouTube, there's other stuff to do. I could be teaching myself foreign languages on YouTube and I'm not doing it because my opportunity costs I guess is maybe high. But if you're young and wanted to study this stuff, you can get a huge head start just by use of the internet cleverly. Tyler Cowen’s advice is find the right mentors. Find some people and learn from them. But you get a huge amount early on to give yourself a head start before you go to university because to be honest, the university experience isn't necessarily going to be all that…
I was on a panel run by CSER on future thinking with the key note emphasising how the inputs had to be more fair (with respect to gender, wealth, nations and the like cf. Feminism, colonialism)
We went to play and be part of The Golden Key. A set of climate aware performances, stories and games. I think this use of agency to tell our stories - our climate stories included - are effective. (Performative arts stunts, am not so sure- needs more proper research.) I feel sure these agency ways are effective, because I have very direct feedback from speaking to people who play, and because the work on agency as tool is strong.
I had an award winning play in this theatre, over a decade ago now…. And it moves on.
The new chip rules are going to have big consequences. Very unsure how it plays out. The games of big powers.
On resolving paradoxes with ergodic thinking.
Why energy needs to be a mix, and why gas and nuclear are likely part of the solution at least for next 50 years or so.
Profile of Jason Furman
Protect yourself.
My podcast
Hi Ben:
*Utility maximising: if the underlying pdfs are non-stationary (see climate), it is non-solvable?
*A friend of mine (General insurance pricing actuary) says the world is uninsurable (climate). So clearly no utility maximisation by humanity! (We are like the Titanic, with too many status quoers in the wheelhouse with their hands on the wheel, keeping us going straight ahead)
•On wealth, Beinhocker’s "The Origin of Wealth" is viewed as a classic by several in my network.
•I encourage folk to look at the BEIS funded work at EEIST. Formation Economics is part of the way forward. And my economist friends tell me the first step to enlightenment is to ditch General Equilibrium. (See Walras and Physics Envy)
Mike Clark