0.2 Historic perspectives: economic and population growth  (Page 11/10)

All too often, economists and policymakers ignore, or overlook, important lessons of history, both recent and distant, to the detriment of economic growth.

An illustration from recent history

Less than 20 years ago, amidst great drum rolls and high expectations the common currency called the Euro was launched. The Euro is a child of former French President Valery Giscard d’Estaing and former German Prime Minister Helmut Schmidt. Not all 27 members of the European Union (EU) have adopted the Euro. Britain and Denmark are prominent among EU nations who kept their own currency.

Why did most EU nations adopt the Euro?
They believed a common currency would facilitate more intra-Eurozone trade and lead to both lower costs and lower growth.

Why did Britain and Denmark stay out of the Euro?
They did not want to lose control of Macro forces in their nations.

Why does the Euro face an uncertain future?
Because, for members of the Euro, the Euro is a form of fixed exchange rates.

As we will see in Chapter___, recent economic history provides ample evidence that fixed exchange rate regimes cannot be made to work in a globalized world economy. The empirical evidence over the past forty years makes this clear.

Why then did so many economists argue in favor of the Euro from 1990 to 2010? Because economists in the U.S., Europe and elsewhere deeply wanted the Euro to work. Economists as well as politicians convinced themselves that a fixed exchange rate would work, in spite of all the contrary evidence available. Why?

Not for the first time in history wishful thinking interfered with good economic analysis.

In the years leading up to adoption of the Euro then a widespread belief that a common currency would lead to greater economic and political integration of Europe.

One reason why economists generally failed to anticipate the difficulties encountered by the Euro was that they had tunnel vision, as they focused primarily on the role of the exchange rate in isolation , rather than as one important part of complex economies of the 21st century.

Also, why have almost all economists failed to anticipate other important economic disasters, including disasters in the 21st Century such as the dot.com collapse of 2001-2002, when irrational exuberance led to vastly inflated values in the stock market for so-called dot.com companies?

And why did they fail to anticipate the economic meltdown in the U.S. and Europe beginning in 2008 persisting until 2010, with only weak recovery thereafter?

Why were these surprises?
Because too many economists, even good ones competent in their own fields often view the world economy through NARROW-ANGLE lens. What is needed is a world view, a Weltanschauung , informed by using a wide-angle lens on the world economy.

We will see that, in the study of economic development, we have a special need for using a “wide angle lens,” especially since what happens in one part of the world economy has major and often immediate impacts on other, apparently unrelated parts of the economy.

Perspectives from older history

Much of the discussion pertaining to early historical economic magnitudes is based on the voluminous work of Angus Maddison (1926-2010). Professor Maddison, over his long career, published dozens of articles and ten major books on measuring economic magnitudes from 1 to 2010 C.E. Two of his most recent books on these topics were:

1. Contours of the World Economy, 1-2030 AD; Essays in Macroeconomic History, U.K: Oxford University Press, September 2007.
2. Chinese Economic Performance in the Long Run, 960-2030, Paris: OECD, October 2007.