In this comparison of countries’ Gross Domestic Product, we see that the recent rise of China’s and India’s economies puts them back to the position they had before the Industrial Revolution in the early 19th century. While the relative positions of the countries are changing, the numbers themselves are sky-rocketing in this period: a lot of the world got richer at a much, much faster rate than for the preceding thousands of years of civilisation.

With any such chart, there will be things missed out or inexact. Some countries ceased to exist, or came into existence: the above chart has Russia existing continuously as one entity, but for a lot of the 20th century, Russia was part of the Soviet Union rather than a country in its own right. The political entity now known as India didn’t come into existence until 1947: the country in the same location at the start of the 19th century was the Mughal Empire.

Another source of error is that for the distant past the numbers are estimates based on incomplete data. Countries will differ in how well records were kept, what kind of records, and hence how meaningful the estimates are. All these are reasons to interpret the numbers cautiously.

Another country comparison: internet users from 1990 onwards.

Again, look at the different magnitude of the numbers in 1990 (when tens of thousands of internet users in one country was a lot) versus more recently.

Instead of countries, let’s now look at cities’ population:

Again, we see European and North American cities tearing ahead early on, but being left in the dust by Asian and South American cities more recently. Comments in the discussion point out cities in South America and the Indian subcontinent that weren’t included in the historical data.

There is always a problem of defining the population of cities: to take the built-up area itself or the wider metropolitan area? For example, the population of London is eight million, ten million or fourteen million depending on which definition you take. So these charts shouldn’t be taken as giving an exact number of inhabitants for each city. Again, there are also cities not included because not enough historical data were available.

Back to countries, here’s the chart race for CO2 emissions: not a race anyone should want to win.

Bearing in mind that countries trade each other, a country’s own emissions are not purely the result of its own economic activity. For instance, there are emissions from Chinese factories that are producing goods for export to other countries. So the relation between economic and activity and emissions is complex.

This chart doesn’t take into account population: per capita emissions give a very different race:

First, a technical recession has a very strict definition, namely two successive quarters of negative economic decline. Such a rigid definition gives rise to anomalies. It could be argued that the UK is currently in one of those anomalies. In 2011Q4 the UK’s output fell by 0.3%, in 2012Q1 it fell by 0.2% (preliminarily). Compare this to the last UK recession, which began in 2008Q2 and finished in 2009Q2, where the average quarterly fall in GDP was 1.5%. Granted no one can be sure where this current downturn will end but to compare both periods like for like by defining them both as a ‘recession’ is nonsensical.

Second, it is important to look at the economic performance of the UK prior to the current recession. In the four quarters prior to the recession (2010Q4 – 2011Q3) GDP grew 0.2%. Moreover, GDP growth between 2010Q3 and 2011Q4 has alternated between positive and negative rates every quarter. This low average level of GDP growth and large fluctuations in GDP growth during the year prior to this recession is more worrying for the UK economy than the last two quarters of very small GDP contractions.

Third, GDP growth in services actually rose during 2012Q1, after falling in 2011Q4. Services accounts for a vast majority of the UK’s total output and growth in this sector will be vital for a prosperous UK economy in the decades to come.

Although the UK economy is going through difficult economic times, critiquing the rhetoric that many politicians and media outlets spew can result in much different conclusions. Perhaps policy makers should be less concerned with avoiding a double-dip recession and more concerned with creating a long-term stable environment for UK businesses and the public.

A Scientist for Every Issue

What sparked my interest in economic history was actually a book which had very little to do with the past. It was ‘The Cult of Statistical Significance’ by Steven Ziliak and Deirdre McCloskey.  The book was, as you have probably guessed about statistics; furthermore the authors argued that statistics was having a negative effect on the way that economists undertook research. They argued that economists liked to appear scientific and one of the ways to do so was to use statistical significance. A clean cut, simple procedure that gives a right or wrong answer appeals because it seems to offer a degree of certainty to a researcher’s findings. Does smoking lead to an increase in the use of other drugs? Do a t-test and you have your answer. However what exactly does the test of statistical significance prove? The answer, to the authors, was not much.

I am not going to talk more about this debate here (as it is quite technical, divisive and will likely bore the pants off anyone that isn’t interested in doing research in the social and natural sciences). One of the points that I did take away and thought would be interesting to talk about, was that economists can benefit from grounding their work in a wider context.

How to Build a Discipline from the Ground Up

This is where economic history can really play a part. Firstly modern neoclassical economics, the stuff that gives us supply and demand diagrams and the toolkit for how a central bank should be run, is based on a number of key assumptions about the nature of the world. Many of the debates on these assumptions happened over a hundred years ago.

Take for example the theory of value. What should the price of a good be? Should it be decided by how much of each input goes into its production?  Or should it be decided by how much use that people get out of it? Why don’t we just let the market decide and take that as its value? If the first case is true then is the value of the internet, which as a service is very cheap to provide for each user, valueless? Likewise if we use the third option and let the market decide then the internet is still pretty cheap. However, people clearly get a lot out of the internet. It has created a great deal of what economists call consumer surplus; that is what consumers get in value above and beyond the price they pay.

Trial and error, a 10000 year experiment

Secondly it allows us to enrich many of the theories we have to explain the world as it is today. I am currently reading another book (this is the last I will mention I promise!) called ‘Structure and change in economic history’ by Douglas North. In the book he attempts to create a theory which can explain why economies over time fair well and poorly.

For example, we can explain why humans moved from a hunter gatherer society to organised agriculture. For the first million and a half or so years of our history humans occupied a very small area of the globe. There was a lot of space and so as our population grew there was little pressure on hunting resources as new groups or clans could simple move into territory unoccupied by other humans. However, as the world began to be filled up the amount of free space decreased. This caused a decline in the marginal benefit of hunting as there were fewer animals to go around, and there was no incentive for tribes to not exploit all of the animals that surrounded them. If they decided to not hunt a herd or buffalo, some other tribe would. Hunting suffered from what the tragedy of the commons. At some point, the marginal productivity of hunting must have fallen below that of agriculture. When this happened it became in the interest of tribes to start farming, as extra hunters had very little effect on how much game a tribe would catch. Over time agriculture became more and more productive (from breeding crops, improving techniques etc.) and eventually replaced hunting as the main form of food production.

There are no ways of testing such a theory, but it is interesting none the less. It also demonstrates how central property rights and natural resources, two items usually omitted from modern economical analysis, can be in examining the nature of the world.