Category: History

…because trade accounts for only a third of the economy, compared with a Latin American average of about half, Colombia has been sheltered from the worst of the global slowdown. The country also lacks the debt hangover of its western peers; credit is only a third of GDP, despite a mini credit-boom in mid-2007, when consumer lending grew more than 30 per cent.

As well as the peace dividend following the end of hostilities with insurgents, a burst of government spending in 2009, combined with swift interest rate cuts, helped keep the economy afloat. Colombia probably had Latin America's best economic performance last year.

But just as its slump was shallow, so may be the bounce-back. Fedesarollo, a think-tank, forecasts 2 per cent growth for 2010, versus a 3 per cent regional average. The new government faces a fiscal gap equivalent to 4 per cent of GDP. Furthermore, reinserting disbanded fighters into civilian life, plus reparations, could turn the peace dividend into a peace cost.

Colombia's so-called "doggie-paddle economy" – the stroke may be slow and inelegant but it is steady – has overcome far worse. Over the past century, the economy has only shrunk twice.

The link is here.

Financial panics and economic crises are nearly inevitable, for at least two reasons.  The first is that policymakers are ill-informed and have poor incentives.  The second is that bank managers, periodically, like to take risk and we are unwilling to shoot or otherwise severely punish the failed ones.  Instituitions which transform liquidity can, sooner or later, find a way to take such precarious risks, no matter what the regulators do (it still may be worth trying regulatory restraint, however).  There's simply not enough downside risk in a wealthy, humane society.

The nineteenth century financial panic will prove the "norm" for human history.  The research question is how we avoided such panics for 1950-S&L crisis, or whatever you take the cut-off points to be.  The capital controls of Bretton Woods may be part of the answer (plus that is a strange economic period in a number of ways), although it is not obvious such controls could be made to work today.

More and more, people will turn to the wisdom of the great 19th century economists on financial panics, bank runs, and the like.  It was an intellectual mistake to think we had ever left that world for good.

I thank Benjamin Chabot and Mario Rizzo for useful conversations on this topic.  Bill Easterly offers related remarks, as does Paul Krugman.

That's a reader request from the especially loyal Harrison Brookie.  First, you might wish to go back and read the MR reviews and debates of Greg Clark's Farewell to Alms,

More generally, extended periods of economic growth require that technologies of defense outweigh technologies of predation.  They may also require that the successful defender, at the same time, has good enough technology to predate someone else and accumulate a sizable surplus.  Parts of Europe took a good deal from the New World and this may have mattered a good deal.

Building a strong enough state to protect markets from other states is very hard to do; at the same time the built state has to avoid crushing those markets itself.  That's a very delicate balance.  China had wonderful technology for its time and was the richest part of the world for centuries but never succeeded in this endeavor, not for long at least.

England was fortunate to be an island.  Starting in the early seventeenth century, England had many decades of ongoing, steady growth.  Later, coal and the steam engine kicked in at just the right time.  English political institutions were "good enough" as well and steadily improving, for the most part.

Christianity was important for transmitting an ideology of individual rights and natural law.  As McCloskey and Mokyr stress, the Industrial Revolution was in part about ideas.

There are numerous other factors, but putting those ones together — and no others — already makes an Industrial Revolution very difficult to achieve.  It did happen, it probably would have happened somewhere, sooner or later, but its occurrence was by no means easy to achieve.  The Greeks had steam engines, proto-computers, and brilliant philosophers and writers, but still they did not come close to a breakthrough.

One question is how long the Roman Empire would have had to last to generate an Industrial Revolution and don't mention the Eastern Empire smartypants.

If you are asking why the Industrial Revolution did not occur in the Mesozoic age, or other earlier times, genetic factors play a role as well.