DeLong looks back

by Russ Roberts on August 29, 2007

in Uncategorized

Two wonderful posts by Brad DeLong, (here and here) on the economic changes of the last century. One highlight (there are many) is his list of what a professor in the distant future would want students to know about the world economy at the start of the twentieth
century?

At most, seven things:

First, that the world at the start of the twentieth century–even the
most advanced economies at the start of the twentieth century–were
very, very poor relative to how they would be at the century’s end. But
that was about to change.

Second, that the spread of ploughs that pulled themselves and looms
that wove by themselves was about to end the pre-industrial era, and
promise to make the world amazingly rich by all previous standards.

Third, that the ten thousand years in which people had lived largely
in small groups in villages was about to end: people were starting to
live in large groups in cities.

Fourth, that in the late nineteenth century transportation costs had
finally fallen low enough and transport speeds had become high enough
to make mass intercontinental shipment of goods and people possible: a
global economy and, because of telegraph and all the rest, a global
polity too. This fall in transportation costs had for the first time
created the possibility of a global economy–an economy in which
movements of people and goods across oceans and between continents were
central to how the economy worked, rather than mere precious and luxury
froth on the surface of a deep ocean.

Fifth, that this global economy was on its way to becoming a global
market. The era in which goods were either consumed at home, consumed
by you relatives, traded among your neighbors, or offered up to keep
the thugs with spears or the thugs with quills from killing you was
also coming to an end. Supply and demand would rule–which does not
mean that thugs would not use force to manipulate supply and demand.

Sixth, that the fall in transport costs and rise in transport speeds
had come about when the military-force gap between the North Atlantic
and the rest of the world was at its maximum–which meant imperialism,
formal or informal, and colonialism, open or masked.

Seventh, that the people were standing up politically. In proportion
as populations became urbanized and as rural populations became
commercialzed and plugged into the global communications network,
politics became democratized: rulers found themselves depending in fact
as well as in noble flights of fancy on the consent of the governed–a
consent that could be extracted for a while at gunpoint or
gramophonepoint.

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{ 16 comments }

The Dirty Mac August 30, 2007 at 10:15 am

All thanks to the government, labor unions, and the world's poor, the latter for being expoloited and bcoming pooer so that others could be enriched.

The Dirty Mac August 30, 2007 at 10:25 am

That's "becoming poorer". I just got overexcited thinking about the exploitation of the masses.

Gil August 30, 2007 at 11:26 am

Ha! You know the problem of the 20th century is that it was a combination of Capitalism and Socialism! Which one caused the greater increase in standards for the average schmoe? Or was it technology that saved the day whereby a not-so productive machine worker would greatly outperform a hard-working manual laborer? The talk of the good ol' days as the 1800s was much closer to laissez-faire than the 1900s so that should mean from a Libertarian P.O.V. the wealth increase of the 1900s shouldn't have been anywhere as high as the 1800s. Then again it could be said that through governments and trade unions the workers stole the various gains and the 1900s was an artificially well-off time for the average schmoe. The Capitalist side of the West made great strides in wealth but the dang Socialists redistributed enough to create an unnaturally large middle class without taking too much as to destroy the wealth generation. Hence in the 2000s we see the artificial middle class disappear at the same time Socialist governments and trade unions disappears. Which one? To choose, to choose . . .

eulb llort August 30, 2007 at 1:48 pm

Yes all is wonderful comrades. I look forward to the day I can study economics at the university of Calcutta via the internet.I will without a doubt gain a first rate education but at 1/100 the cost of an american based college. The futures so bright I gotta wear shades.

Sam Grove August 30, 2007 at 5:18 pm

Or was it technology that saved the day whereby a not-so productive machine worker would greatly outperform a hard-working manual laborer?

Bingo!

It was the potential for profits that brought the machine into the workplace….Capitalism.

AE August 30, 2007 at 6:03 pm

It's amazing how much deeper the "prosperity pool" has gotten over the last century. According to the BLS's 100 Years of Consumer Spending, the share of income not spent on food, clothing, and housing has increased from 20% to 50% even with the percent spent on housing increasing 9%. It is amazing that over 100 years the % of income spent on clothes has decreased from 14 to 4 especially considering the increases quantity and quality of clothing.

T Sowell fan August 30, 2007 at 8:14 pm

And all of that prosperity increase despite the wasteful, damaging interference of governments. As Walter Williams points out in this column (http://jewishworldreview.com/cols/williams062007.php3.):

"The fact that Americans have become ruled by orders and special privileges helps explain all the money and graft that we see in Washington. We've moved away from a government with limited powers, as our Founders envisioned, to one with awesome powers. Therefore, it pays people to spend huge amounts of money to influence Congress in their favor, that is, get Congress to grant them privileges denied to other Americans."

When Williams asked Friedrich Hayek if he could propose one law that would restore, promote and preserve liberty in our country, what would that law be, Hayek answered that the law he'd propose would read: Congress shall enact no law that does not apply equally to all Americans.

As Williams points out, "Equal treatment would require Congress to figure out the cost of the constitutionally authorized functions of the federal government, divide it by the adult population and send us each a bill for our share. You say, "What about the ability-to-pay principle of taxation to pay for the cost of government?" That's just a politics of envy concept that would be revealed as utter nonsense if applied to any other cost. Would you apply the ability-to-pay principle to, say, gasoline or food purchases where different prices are charged to different people depending on how many dependents they had, their income, or whether their income was derived from wages, dividends or capital gains?"

True_liberal August 30, 2007 at 9:37 pm

DeLong's sixth point (speed & freedom of travel) expedites the movement of capital away from high-tax regimes to more attractive tax haven. The OECD of course calls this "predatory tax competition", and now claims Pope Benedict in its pocket: See http://www.gmu.edu/departments/economics/wew/articles/07/OECDthugs.htm

True_liberal August 30, 2007 at 9:38 pm

Ooops – See:
http://www.gmu.edu/departments/economics
/wew/articles/07/OECDthugs.htm

The Dirty Mac August 31, 2007 at 2:18 am

"The Capitalist side of the West made great strides in wealth but the dang Socialists redistributed enough to create an unnaturally large middle class without taking too much as to destroy the wealth generation."

My union member parents at my age had one sometimes reliable car, never ate out except for pizza or at the diner, never vacationed, had never been on a plane expect for my father's military service, listened exclusively to AM radio, etc. I venture to say I am doing better than they altough I am non-unionized and receive no transfer payments.

Today I will have Vietnamese food for lunch. I will credit socialism for enabling me to have such an "exotic" and inexpensive lunch, not because the food provider is subsidized but because the retaurateurs are likely proximate to me only because they fled a socialist paradise.

ben August 31, 2007 at 2:30 am

What's depressing is that in responding to an article about the economic and technological progress of the 20th century, a century which witnessed the near-miracle of a doubling of world life expectancy from 30 to 60, Dirty Mac and eulb llort find a way to tell you what's wrong. What mind-numbingly sad pessimism.

Nasikabatrachus August 31, 2007 at 3:26 am

Gil, when someone like Rockefeller gets rich by increasing efficiency and reducing prices (say, from 60 cents to 6 cents in the case of oil), you don't need to steal ("redistribute") his money from him to benefit his customers and employees.

Also, the middle class is as solid as ever. If it's being threatened by anything, it's the "soak the poor" tax policies/corporatism of Bush which places more burdens on the poor and less on the rich, not an increase in the scope of the free market.

ben August 31, 2007 at 4:17 am

I will credit socialism for enabling me to have such an "exotic" and inexpensive lunch, not because the food provider is subsidized but because the retaurateurs are likely proximate to me only because they fled a socialist paradise.

You can also eat Japanese cuisine and they never had socialism.

You probably need to be thanking private property and the entrepreneurs who brought it to you in their pursuit of a profit. While you're at it, thank the inventors of virtually all the material goods and services in your life, virtually all of them capitalists and operating in the pursuit of profit.

Then think of all the inventions that make your life better that were developed in socialist economies.

And finally think about which system has done most for living standards.

The Dirty Mac August 31, 2007 at 9:14 am

Ben – my bad for not distinguishing the sarcasm ftom my real points.

The real point is that 20th century notwithstanding, living standards have increased very significantly in the last thrity years. Within twenty minutes of waking up this morning, I visited Cafe Hayek and got the baseball scores, used one of those modern disposable razors, drank arabica coffee from an automatic drip coffee maker, and started cooking prepackaged egg whites. This weekend I will visit the old mill town in which I was raised which is now center to the Fortune 500. I'm not a rich guy, but that Vietnamese food I mentioned was generally unavailable in my town at any price and the current $5.95 lunch special is not what one would call an exclusive experience.

Those proclaiming the disappearance of the middle class need to take a closer look at the basket of goods and services available to that class.

Gil August 31, 2007 at 10:11 am

I don't know. I blame technology mostly for the 20th century. But then again you could blame 'imperialist mercantilism' which I believe some Libertarians define mercantilism as 'those use have force and fraud in their toolboxes as one of many ways of making profit'. Without imperialist mercantilism we may not be able to live in the New World nations as a true Libertarians wouldn't go around driving the various natives off their lands or enslaving them let alone shooting them. Or for that matter how much of the New World exploration was profitable because of plunder, especially in South America? If plunder wasn't allowed then people in the Old World may have given up trying to go to the New World for lack any realizable profits. As I pointed out before the 20th century was far from laissez-faire making the ability to isolate one factor rather difficult.

ben August 31, 2007 at 10:25 am

The bad is all mine Mac, sorry I missed your point. Its actually pretty obvious now that I read it again!

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