Econ 1: Fall 2010: U.C. Berkeley: September 29 Economic Growth Lecture

20100929: Econ 1: Fall 2010: U.C. Berkeley: September 29 Economic Growth Lecture:

Thank You For Taking the Midterm: Let me thank you all for taking next Monday's midterm. I know--it is way too early to be proper midterm. The problem is that I need it as an instructor reality-check device.

I stand up here and lecture at you. There are 620 of you. I cannot read your faces well enough to figure out what you are getting and what you are not. I have little clue right now whether my lectures are over most of your heads, or are mind-numbingly slow.

One reason that I lecture--even though I have little clue right now as to whether I am lecturing at the right pace--is that back in the Middle Ages a book cost the same share of average incomes as $50,000 is today. Look at a book. Think that if you were in the Middle Ages--well, you would probably be illiterate. If you were in the Middle Ages and were literate you would probably regard a book kind of like Southern Californians regard a BMW convertible. Students could not really afford books--at least, not many.

Suppose you were a student at the University of Naples in the 12th century. Suppose you owed student loans to the moneylender. Suppose you wanted to leave Naples--in order to go visit your parents in their manor near, say, Goslar. You could not--unless you first gave the moneylender your books to hold as a pledge. The idea was that your books were so valuable that you would repay your student loans if the moneylender had your books.

Come Gutenberg and the invention of printing books become cheap. The idea that teachers have to lecture because students cannot afford to buy all the books for the courses goes away. But still the very large lecture--a staple of education back in the days when the books were really, really expensive and what about the only way to get access to the book was for a group of you to get together and hear it read aloud--still continues. It continues for lots of reasons. But since it has lost its initial purpose as the only effective way that you can learn the words inside the textbook, it is important that our lectures be good. This means that I have to pitch them at the right level. This means that I have to figure out what you have learned. Hence this reality-check midterm, this early reality-check midterm. I really cannot stress enough that it is for my benefit, not yours. So I thank you all for taking it.

Before the Birth of Human Civilization: So, on to the economics of long-run growth.

When did we collectively invent agriculture? When was the Neolithic Revolution? When did we stop being very smart East African Plains Apes with stone tools and actually become civilized people--with fields and firms and domesticated animals and civilizations?

Figure that it happened soon after 10,000 BC.

Dating the invention of agriculture is important, because the invention in agriculture was one of the perhaps four major changes in human life worldwide, at least from an economic point of view. I claim that the first big change was when we learned how to make fire and stone tools. I claim the second was when we developed language: language allows for plannin,g and for collective action of scale much larger than otherwise possible. Otto von Bismarck said: "Fools learn from their own experience. I prefer to learn from other people's experience." Without language it is really difficult to learn from the experience of very many other people: you actually have to see Ogged poke a hornet's nest with a stick. With language it is easy: the cautionary tale of not to do what Ogged did to the hornet's nest can spread rapidly around the entire globe.

I claim that the third big change was the invention of agriculture.

What was human life like in the perhaps 50,000 years--perhaps more, but it is unlikely to be less--between the invention of language on the one hand and the discovery of agriculture? Those were the years when some of us decided to leave our original East African home and venture out across the Red Sea into Arabia, and then from there to pretty much everywhere else in the world (except for Antarctica) over the next 20,000 or 30,000 years?

For one thing, back before 10,000 BC we were pretty buff. Adult males were perhaps 5'8" on average. We were pretty strong too. We had high-exercise lifestyles. We were, however, short lived: life expectancy fracked. Infant mortality was high--babies are fragile things to drag around. And life was pretty dangerous: break a leg and your odds were not good at all; get an infected tusk gore and your odds were very bad.

Nevertheless, we rose in population numbers from perhaps 100,000 humans in 48,000 BC to perhaps 5,000,000 worldwide by 8000 BC. That is impressive: a population multiplication by a factor of 50,000 in what is on the evolutionary time scale a remarkably short time. Tell the biologists that a population multiplies 50-fold in 1600 generations and they will be impressed.

On the other hand, we can calculate growth rates. Take the natural log of 50--that is four. Divide that by 1600 generations--that is a population growth rate of 0.25% per generation. That is a population growth rate of 0.01% per year. Look across the average century between 48,000 BC and 8,000 BC: in the average century, for every 100 humans who were alive at the century's beginning there were 101 alive at the century's end.

Contrast that growth rate of 0.01% per year with the current human population growth rate of about 1% per year today, or the growth rate of 3% per year from natural increase alone seen during much of the nineteenth-century temperate-settlement pioneer experience.

That slow population growth rate tells us something pretty important about material standards of living. Think of the British colonist landing on the coast of North America after the plagues, the epidemics, and the wars had decimated the Amerindian population. The rule of thumb is that a healthy settled human population with low female literacy, no effective means of artificial birth control, and ample food doubles every generation. Figure ten pregnancies per potential mother eight of which survive to term six of which survive infancy four of whom reach adulthood. Between 48000 BC and 8000 BC, it wasn't 4 children surviving to adulthood per potential mother but rather 2.005. 1.995 adult children per potential mother that we would expect to see in a settled population with ample food simply do not survive.

That much excess mortality tells us that life was not just short--life expectancy at birth of 25 or so--but brutish. You lived the healthy life. You got lots of exercise hunting and gathering. But you watched perhaps three-quarters of your children die. But you did have pretty much all your teeth--hunters and gatherers had a low-carbohydrate zero refined sugar diet. That is what life was like between 48,000 BC and 8000 BC. You were physically relatively fit. But populations grew at only the most glacial pace--which means that the odds were good that the jaguar got ya.

The Agrarian Age: Now let us move on to the world of agriculture that starts in 8000 BC or so: the agrarian society where people figure out:

1. there are these grasses that have really big seeds
2. if we plant all these grasses right next to each other in a place that has a lot of water, then
3. if then we stick around for a while and drive off the birds before they eat the seeds
4. we will be able to get a lot of our nutrition from these really huge grass seeds--they are quite nourishing
5. and we won't have to rumble around our hundred square-mile foraging territory: we can just sit at home and each day gather some more grass seeds--especially if we figure out how to dry them so they will keep.

Nowadays we call these seeds by other names. We call them "wheat" "rice," "rye," "barley," "corn," and other things. They still contribute 75% of the calories that human beings eat--some of it in bizarrely-processed forms like the high-fructose corn syrup we drink. With the coming of agriculture your ability to get the calories to maintain your family goes way way up, and the necessity of roaming about the countryside looking for food goes the way way down. Thus you can start building permanent structures. You have much more time to start weaving plant fabrics together with turkey feathers and furs so you can have better clothes to wear.

Inventing agriculture seems like a no-brainer, right? You can build and live in a permanent house so you don’t get as wet. You can weave and stitch better clothes to wear so you don’t get as cold.

But when we dig up skeletons from 100 BC or so, we find that the adult males are not averaging 5'8" any more: they are averaging 5'2". Some people are taller--that Karl who was son of Pippin (called "the short") and of Bertha (called "greatfoot") appears to have been well over six feet tall. On the other hand, this was the guy whom Pope Leo III proclaimed Boss on Christmas Day of the year 800 AD:

Since the title of emperor had become extinct among the Greeks and a woman [Empress Irene] claimed the imperial authority [in the city of Constantinope]...

Pope Leo:

crowned [Karl] with a most precious crown. Then all the faithful Romans, seeing how [Karl] loved the holy Roman church and its vicar and how he defended them, cried out with one voice by the will of God and of St. Peter, the key-bearer of the Kingdom of Heaven, "To Karl, most pious Augustus, crowned by God, great and peace-loving emperor, life and victory." This was said three times before the sacred tomb of blessed Peter the Apostle, with the invocation of many saints, and he was instituted by all as emperor of the Romans. Thereupon, on that same day of the nativity of our Lord Jesus Christ, the most holy bishop and pontiff anointed his most excellent son Karl as king with holy oil...

You can bet that if there was food around, Karl got it--from infancy onward, and before that in utero, for you can bet that Bertha Greatfoot did not go hungry either. The lesson is that the upper classes were different--and with the coming of agriculture there are for the first time real upper classes. Most people after the invention of agriculture, look to have been quite short. Most people look to have been pretty much toothless and eating corn mash by the time they were 40--if they were alive. Everybody looks to have become a wonderful environment for human diseases: think of a bunch of people living together in a village, talking to each other, coughing at each other, drinking each other’s water--the bacteria love it and disease becomes a much bigger deal.

If your adult height is 5'2" for males or 4'11" for females, something has gone very wrong with respect to protein and calcium deprivation. If you were to feed your future children a diet that would make make the boys 5'2" at their adult height, California Child Protective Services would take your children away. But that appears to have been the kind of diet that most human beings seem to have had in the years between 8200 BC and, say, 1800 A.D.

There were, of course, exceptions. The biggest people that the anthropologists have are found so far are in fact the Sioux--the Lakota Indians of the American Great Plains. What is going on? By 1600 a bunch of tame horses imported into America by the Spanish Empire have escaped and run north. These are animals whose ancestors had been tamed and domesticated by humans for 3000. So the Souix can tame them. And all of a sudden the Sioux are no longer dragging their teepees and their other belongings behind them on human or dog-drawn travois as they follow the buffalo. They are riding horses--they can outrun the buffalo. It is, for them, a two-century paradise--until the railroads and the cavalry show up and want to replace the buffalos with cows behind barbed wire, and also want to mine the gold under the Black Hills. The Souix, not surprisingly object and make their objections strongly at places with names like "The Greasy Grass." But they are overwhelmingly outnumbered.

But the Sioux after the coming of the horse and before the coming of the railroad are exceptions. For most humans life is not only short and brutish, but nasty as well--protein and calcium deprivation and tooth decay and epidemic disease wreak their havoc.

Still, human populations grow. Maybe five million people in 8000 BC become 750 million people by 1800. A fifteen-fold multiplication in 10,000 years or 400 generations. That is a population growth rate of 1.25% per generation, or 0.05% per year--fully five times as fast as in the previous hunter-gatherer era. This is still a human population that is in toto close to the margin of "subsistence"--but not quite as close as in the hunter-gatherer age.

On the other hand, life appears to have been a lot less healthy in the biomedical sense. That calcium and protein deprivation hit your bones is obvious from the height of skeletons--and I shudder to think of what it did to your brains. Moreover, life is boring: you no longer have to roam around using your knowledge of plans--this is edible, this will this give me a rash, this will make me sick, this animal we might be able to catch, that animal is called a "grizzly bear" and it is time to run--but instead you do the same thing over and over again, ploughing, sowing, weeding, watering, harvesting, threshing, and so forth. Yesterday we transplanted rice seedlings all day. Today we are going to transplant rice seedlings. And tomorrow we get to transplant rice seedlings. The day after that we get to try to scare off the birds before they eat your rice. And because it is wet rice there are all these nice little worms that like to crawl up through your feet and then live inside you.

The stoop labor is not too good for your back either.

These are all things that lead UCLA professor Jared Diamond to say that the invention of agriculture was probably a mistake.

Yes we do have a lot more people in the world. The carrying capacity for the human race of a world with pre-industrial agriculture technology is about 750 million. That is a lot more than the five million carrying capacity of a world with hunter-gatherer technology. But for the overwhelming majority of the people you were illiterate peasants in the agrarian age, it was probably much more fun and much healthier being a hunter-gatherer back before 8000 BC than being protein-deprived, calcium-deprived, bored out of your skull, infested with hook worm, and suffering chronic plagues in the agrarian age.

The Population Explosion: Come 1500 or so there seems to be somewhat of a change. In the half-century starting in 1500 populations in America collapse: the Spanish land, bringing smallpox and a huge number of other diseases the Amerindians have never seen and have no immunity to with them. But everywhere else between 1500 and 1800 human populations appear to have grown by half--a population growth rate worldwide averaging 0.15% per year, three times as fast as in the previous agrarian age proper.

And since 1800 things have been very different indeed. From 1800 to 1900 our population grew at 0.7% per year. From 1900 to today our population grew at 1.5% per year. There are now nearly seven billion of us on the planet. At the moment we are hoping that the spread of birth control, female literacy, and wealth--together with the fact that while most literate women with opportunities to work outside the home want and are extremely happy to have one or two children, rather few want to have four or more--means that our global population will top out at a peak of ten billion come 2050. But if it does not--if human populations keep growing at 1.5% per year so that by 2100 we have 28 billion and by 2200 we have 127 billion people on the globe, our great-grand children's lives will become very interesting indeed, and not in a way that is likely to be good.

Making Sense of the Pattern: How do we read this broad pattern of human demography? Why were average standards of living so close to "subsistence" for so long? And why are they so different today?

The way to think about humanity once people get the bright idea of agriculture and settlement--and so for the first time it becomes really easy not to forget technologies when the people who invented them die--is more or less like this:

Once we have agriculture and settlement, it becomes rare that human knowledge is lost. You have to look hard for cases--the Dorian Dark Age after the Trojan War in the Aegean, the fall of the Roman Empire in the west--to find them. And human knowledge does improve. Sometimes the improvements are remarkable and marvelous. Between the Tang and the Sung dynasties humans develop via selective breeding strains of rice that allow for double- and then triple-cropping each year. Before 800 AD or so Southern China and Southeast Asia were not very advantageous places to live. It was hard to grow enough food to support a substantial population. But with the coming of multiple-crop wet-rice strains, things change. And so people move from the largely wheat-growing Yellow River valley south, to where a family with a relatively small wet-rice farm can eat their fill. By 1200 there are 50 million people living in and south of the Yangtze in the rice bowl that is southern China.

That is why the history of China before 1000 is a history of northern dynasties and populations--Chin, Han, Tang--while the history of China after 1000 is primarily a history of southern populations--and the capital stays in the north, when it does, to keep an eye on the Mongols.

It is a wonderful thing to develop triple-crop strains of rice. It is a significant technological improvement. It all by itself allows the world population to grow by ten percent or so in the years before 1500--and still feed the 10% higher population at the same standard of living that the lower population had had in 1000.

But such impressive inventions and innovations really are a once-in-two-hundred-years thing. And because such innovations come only once every two centuries, the fact that better-fed people with stronger immune systems have more children meant that human populations expanded and so living standards fell back to "subsistence" rather than having improvements in living standards cumulate. Before 1500 human technological inventiveness tended to produce not better-fed people or richer people, but (save for the upper class) only more people. Figure 0.01% per year as a rough yardstick measure of the pace at which human technological capacity grew.

Since the Industrial Revolution: Today things are very different. Right now the worldwide rate of growth of human technological capabilities looks to be not 0.01% per year but rather 2% per year. This iPad could not have existed ten years ago. It cost something like $500 last April. It will cost $250 next April--when its successor is released. These days we get as much technological progress in a single year as our agrarian society ancestors would get in two centuries. Then it would be a really big deal when you finally figured out a way to attach a horse to a cart in such a way that the weight of the cart was on its shoulders rather than on its neck. It took until 750 AD before people out a plough that was actually any good for ploughing Northern European soils.

Back in the agrarian age each year saw on average one-two thousandth more stuff produced than the previous year. In the 1500-1800 commercial revolution early modern period each year saw on average one-two hundredth more stuff produced than the previous year. The first century of the industrial revolution era--1800-1900--saw perhaps one-seventieth more stuff produced each year than the previous year. But today world global GDP is growing by about one-thirtieth every year. What we humans produce is right now doubling every generation, and has reached a level of about $7000 per person per year.

Now this $7000 bucks per person per year of stuff is not distributed evenly. We have say greater than san Francisco--in which the average material standard of living is close to $50,000 bucks per person per year.We have Somalia where, in a good year, the standard of living is $500 per person per year.

We had in 1968 the most unequal world that humanity had ever seen--or at least humanity had ever seen when some groups of Eastern Africa Plains Apes had developed language and others had not. But there are very good reasons to hope that the world will draw closer together in the future as it has during the past generation and a half. And I think that in the long perspective the most extraordinary thing our great grandchildren will remember about the two past centuries will not be the fact the world has become so unequal but rather that it has become so remarkably rich relative to our past.

Think of it: we had nearly 10,000 years during which humanity was closed to a subsistence agriculture standard of living--a bowl of millet and a bowl of rice every day, maybe a chicken egg once a week, maybe a chicken once a month, and whatever greens you can gather.That was how most people lived most of the time between the invention of agriculture and the industrial revolution.

Our Wealth: Alexander the Great, King of Macedon, conqueror of the Persian Empire, Lord of Asia--the guy who led his soldiers all the way from Greece to Punjab. (At Punjab he turned back because his veteran soldiers started asking him: "just why the frack are we still doing this? I understand revenging the defeats suffered by our ancestors. I understand that Babylon would be a nice push place to live. But here we are by the Jhelum River. Do you really want us to go further? Why?)

Alexander the Great owned two books--the Iliad and the Odyssey. Alexander the Great carried them with him in a gold chest. The books were worth more than the chest.

I, by comparison, have here in this iPad 20000 books instantly accessible for the price of ten steak dinners. And when Google Books becomes properly online I will have access to millions of books. Alexander the Great thought his books were among the most precious things he owned. In book-wealth, I outstrip him by a factor of ten thousand--and will soon outstrip him by a factor of millions.

Back, say, 500 years before Alexander the Great, suppose you wanted a high-status career path. If you were athletic and noble-born you could be a king--even king of a small territory would do because it would give you some armed retainers at your back to help you sack cities. Think Agamemnon son of Atreos, or Akhilleus son of Peleos, or Odysseus son of Laertes. But suppose you weren't a king. Then the best upwardly-mobile career path available to you would probably be to learn how to chant the Odyssey. That would make you a good person to have around in the cold winter nights, and on the warm summer nights too. It could get you a place at the table and a warm place to sleep. Telling the story of the adventures and the homecoming of Odysseus was an economically-valuable service that you could perform:

"What ails you, Polyphemus," said they, '"that you make such a noise,
breaking the stillness of the night, and preventing us from being
able to sleep? Surely no man is carrying off your sheep? Surely no
man is trying to kill you either by fraud or by force?

But Polyphemus shouted to them from inside the cave,
"Noman is killing me by fraud! Noman is killing me by force!"

"Then," said they, "if no man is attacking you, you must be ill;
when Jove makes people ill, there is no help for it, and you had better
pray to your father Neptune."

Then they went away, and I laughed inwardly at the success of my clever stratagem...

But if someone comes up to you today and says: "I know how to chant the Odyssey--and I am going to use this skill to get a high-paying job," we try to let them down gently. We point out that people can buy the audiobook of Ian McKellen chanting the Odyssey for $26.37. We point out that people can buy the Kindle version of Robert Fagles's translation for $12.99--and can download Alexander Pope's translation for free.

Things that would have been regarded in the recent past as valuable and important skills--well, today we are so rich we really don’t notice them at all. That is the change that the industrial revolution. has made.

Why the Industrial Revolution?: Thus the big historical question is: what happened after 1800, and even more so after 1900, that made what we call the industrial revolution? It is the fourth of the big changes in how humanity has lived--along with the invention of agriculture, the development of language, and the invention of stone tools and of fire.

The answer to "what happened" is not "the market economy happened.: Ancient Greece had the market economy. Sung China had the market economy. Neither had the explosion of the economic growth we have seen.

The answer might be "limited government." After 1500, for the first time ever, we have governments that are able to promise that they won’t steal your stuff when they feel like it and to actually carry through on those promises. Before 1500 if had stuff and if you wanted to keep it, the only way to be sure you could do so was to rapidly become part of the government and focus all your attention on keeping yourself part of the government. Government is, as the great Arab historian Ibn Khaldun liked to say, an organization that prevents all injustice except for that it commits itself. A limited government is a government that binds itself not to commit (much) injustice. Under such a government people can turn their attention to other things. For example, Steve Jobs in Cupertino can turn his attention away from lobbying the government and doing favors to politicians so that they don't steal his stuff, and instead turn his attention to terrorizing the engineers of Apple Computer and otherwise motivating them to produce the best possible successor device next April to this iPad I hold before you.

Some of the answer might be "the Columbian exchange." Starting in 1500 all of a sudden humans start moving all kinds of useful plants across the world--transfer the rubber plant from Brazil to Malaysia, transplant the coffee plant from Ethiopia to Java and from Java to Brazil, transplant the hot Mexican pepper to Sichuan, transplant the Peruvian potato pretty much everywhere. That may have given humans enough of an edge above subsistence to allow them to turn more attention to invention and innovation rather than just trying to keep their heads above water.

It is interesting. We look across the dividing lines of 1500 or 1800 in practically every field of human excellence, and our predecessors speak to us. We still listen to the music of Pachelbel. We still study the orations or some of us study the orations of Cicero. We still examine the campaigns and battles of Julius Caesar and Alexander the Great. We still admire the statues of Michelangelo. Poets, generals, politicians, musicians, sculptors, playwrights, artists--we don’t seem to have much more on the ball than they did, even though there are a lot more of us today and you would expect the law of large numbers to produce more excellence today than in the past.

But the economy is different. Wherever we turn in the economy, we find that the organizations we have have literally nothing to learn from anybody in the past.

So what happened to produce this divide is the big historical question. Because this is a principles of economics class and not an economic history class we are not going to answer them. I recommend that you take a global economic history or a sociology of modernity class. But I don't have time here to cover these issues. Thus next time we are going to talk about not why the industrial revolution occurred, but rather how economies have grown since the industrial revolution.

Gapminder.com: Let me close by cutting and pasting from the gapminder.com website which has a bunch of very nicely represented data series on levels of prosperity and standards of living in different countries since 1800 along the horizontal axis and life expectancy at birth along the vertical axis. It shows us how the world was in the 1800, when the great mass of human standard of living is something between $200 and $1000 per capita per year (with China being the big red ball in the middle, and with the United States and the United Kingdom the industrializing societies out there on the prosperous edge).

Fast forward to 1968. A whole bunch of countries, mostly in Africa, look very much like they looked back in 1800 with respect to income--but everybody looks much better with respect to public health and life expectancy.

Since 1968 the world has continued to grow and has become a much, much more equal place. The reduction in inequality stems from the fact the big red ball (China) and the big blue ball (India) have joined the upward merge of prosperity bigtime. It is not so much that the universe of countries have been doing different since 1968. It is that two countries have been doing different since 1968: together they are a third of the human race.