sentieRis Kase Economics: A Very Short Introduction KR E Partha Dasgupta 2007 CEN) ids ire BE No, REE BEARHANGAL, 2013.1 Contents Bx Preface Foreword Prologue Chapter I Macroeconomic history Chapter 2 Trust Chapter 3 Communities Chapter 4 Markets Chapter 5 Science and Technology as institutions Bass Fe Pail BE MSciencestl ‘Technology 1] Chapter 6 Households and firms BAR RRA Chapter 7 Sustainable economic development Rak ARMA RE Chapter 8 Social well-being and democratic, jovernment I Ph AAA BOE Epilogue nid Index. 51 Preface ie ‘Writing an introduction to’economicsiis both | y22 732 "5 — AMM PE EAL easy and hard. tL aE ASE It's easy because in one way or another we are all economists: BGs, AMMEN LUE PUIAA MIT PG LRP R No one, for example has £6 explain to us what prices are - we face them every day BU, RANA ARR ARH —_RANGA MB ME Experts may have to explain why banks offer interest on saving deposits or why risk aversion is a tricky concept or why the way we measure wealth misses much of the point of measuring it, but none of these is an alien idea. BUR iE a BERR, PRAT Ath BE fit BARNET G, “RARUR, WARTS AA ES, ATT EI FR TTT tt Se A EE Li Ts I a i SE tA My (REIT AT METER TABI AS fe As economics matters to us, we also have views on what should be done to put things right when we feel they are wrong. RES RUT IK, SRA RATA AHO, ATT ZARA FETA A OND. ‘And we hold our views strongly because our RAN SWAVE A CHM, AAR Aiea. wwwall-terms.com/bbs ATMA RAIA, SIAL EAT, NATEsentieRis Kase ethics drive our politics and our politics inform our economics, ATS A Se eB BAT 3, MAIC SH HE RAIA Evia When thinking economics we don’t entertain | Bf ]}f ti We Lo oF or tl AAI doubts, ABER, So, the very reasons we want to study economics act as stumbling blocks even as we try to uncover the pathways by which the economic world gets shaped FADE BN (ER ATA RE TEMGE RINT, RAT RTEE BRD ta sé Be eT” But as economics is in large measure about those pathways - it’s as evidence-based a social science as is possible - it shouldn't be surprising that most often disagreements people have over economic issues are, ultimately, about their reading of ‘facts’, not about the ‘values’ they hold. AERP ERR SE CEA PI EA BAK COA TVR fe DAE aE VEL AE ATLA ARE PAE AE, ACE LE id Bit ds BBL, BACT ES teAN FAK, inl a fA overview of economics as it appears in leading economics journals and textbooks. Which is why writing an introduction to FAL Ze Ss — Ashi Sh — PF ARE economics is hard. Meet. When 1 first drew up plans to write this BT SRA SRA REBT RIM, book, I had it in mind to offer readers an RMF MAME BiH Ra ee RAE REO ENIAC BIBS» RMA But even though the analyticalland empirical core of economies has grown from strength to strength over the decades, I hayen’t been at ease with the selection of topies that textbooks offer for discussion (rural life im poor regions - that is,the economic life of some 2.5 billion people= doesn’t get mentioned at all), nor with the subjects that are emphasized in‘leading economics journals (Nature rarely appears there as an active player) SV, ORE EEA TANS FEI IL APR Ee 1 SAL PUD ER Lee ey i RL CGE BBN EK AY LC ER A FEB, MR IEAMSIZ ALEGRE TE), WAZ SBETE IRE ETL RAR GMA AUR PARE SSB) , Mere ABBE. Ttalso came homie to me that Oxford University Press had asked me to write a very short introduction to economics and there are economics textbooks that are over 1,000 pages long! PRINS eae ERE SAF SE —€§ KEM NAL ER RAE TEY Sth — AR AEH LIST, OAT EE A BAGH AE L000 REL Lt So it struck me that I should abandon my original plan and offer an account of the reasoning we economists apply in order to understand the social world around us and then deploy that reasoning to some of the most urgent problems Humanity faces today. RIP A — Aa: RMB PUR, Hm R RE RAST SAAR A VN FA A Se A HE FMR MIZE TTI, BPA AY EET LIA) SIRNA BS Br eAiese: wwwall-terms com/bbs AEM RALAA, MIATA AI PERIAESeen: Rss 8) — BH 9 BE HS BLE Ts only recenily that Irealized that Iwould | W/MERA RUE, RAW LRD be able to do that only if I shaped the 2B Pe TAB ia By hE discourse round the lives of my two literary en eer rerraners grandchildren - Becky and Desta, “i ES. The PRE solA Becky's and Desta’s lives are as different as | Ul AIM ZRIVETRA AMZ. (2 they can be, but as they are both my HA TAMARA, BLA RAR grandchildren, I believe I understand them. | yrs qzbigiyiiytim. ‘More importantly, economics has helped me to understand them. SEIN BEALE, AE AIA. TE REE The ideas developed here were framed and explored in my book, An Inquiry into Well-Being and Destitution (Oxford: Clarendon Press, 1993). SCR HH AO ie AERA AE BiG) ChE: SERIE GLMGEL, 1993) ERP BURR While writing that book I realized that economies had increasingly driven my ethics and that my ethies in turn had informed my politics EMABIS (ERTS RIA, BRA LE AMT RE OM Be, MORRIE a PETS. ‘As that is an unusual causal chain, the earlier book was more technical and a lot ‘heavier’ HR Ma ARR, TA SEZ WO MS aE TE EEN BEAL ii Theoretical and empirical advances Since it was published have led me to hold the viewpoint I advanced there even more: strongly now. AEH, FCAISEE LAKE A(R ER BW ae ERE EHH AOL Tunderstand things much better than T'did then - including why I don’t understand many things. SURRY HAC, BURY SED ER OE TK WET ARMIES EAE WE. The preSent Works a Ratural extension of my-ealier book. EA ROH — A While preparing this monograph Ihave benefited greatly from cortespondence and discussions with Kenneth Arrow, Gretchen Daily, Carol Dasgupta, Paul Ehrlich, Petra Geraats, Lawrence Goulder, Timothy Gowers, Rashid Hassan, yer, Pramila Krishnan, Simon Levin, Karl-Géran Maler, Eric Maskin, Pranab Mukhopadhay, Ki Mumford, Richard Nolan, Sheilagh Ogilvie, Kirsten Oleson, Alaknanda Patel, Subhrendu Pattanaik, William Peterson, Hamid Sabourian, Dan Schrag, Priya Shyamsundar, Jeff Vincent, Martin Weale, and Gavin ERM ER OSLER, BOAIDL Fide ALAM CU AU TAREE: AF FENDER. RBI Mea RR. OER eA Aan. ER BURR, SOM AAS ARO, RAMEE. WERE UR. BOK ROMER. ERR, BIR 2) IRENE ge ENA AB SEI. SLC ENTE. EHH A SES ORME AR, DEAR RE DU AR, RUEATE ER. BEATA 3. PRAIA, RH HEA I De eAiese: wwwall-terms com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss Wright Pe itch EE EAC MT HEAR, DAOC The present version reflects the impact of the comments I received on an earlier draft from Kenneth Arrow, Carol Dasgupta, Geoffrey Harcourt, Mike Shaw, Robert Solow, and Sylvana Tomaselli EAI TF fin Ms PEM BY. RB AR i EE » AAR. WD A PA REG, DARA FEA. Sue Pilkingion has helped me in nnumerable ways to prepare the book for publication Die BEAR ERIE ATE Hi tH Fh, MAROTTA BAR ET HD. Tam grateful to them all BEAL MAIL AR aR St John’s College ZEAE B Cambridge SB August 2006 200648 Foreword ee Justin Yifu Lin MBER Following economic reform and liberalization, the establishment of a market economy in China has created much interest in understanding and mastering the principles of the operations of a modern market economy, and the study.of modern economics has become very popularin China, BFP, Be eri be OT ANT. THESE AR IMAC Hie i AT SONAL ACTER IR LL Se FEN For example, the China Center for Economie Research (CCER) at Peking University, of which [am the director, offers an undergraduate double degree in economies which admits 800new students every year—f-numbef equal to nearly one-third of all new undergraduate enrollment at Peking University: Anew generation of Chinese economists is emerging. Fe OTE RTE ET RR, ROE MCRAE TAA AT DARA: (ir, EAM Wee S800% . HABA AS ACERS Z—, FLERE A ACA TE EE HE i. Since Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations in 1776, sparking the development of economics as an independent social science separate from philosophy, numerous famous economists have sprung up and a large number of researchers have devoted their lives to economic research. Currently, the American Economic Review publishes as many as 2000pages per year, with other 1000 plus articles appearing annually in various first-tier academic journals. In ELSE WUPREIT IO“ ete CORED, BURL A EP Oa WB RAL REP BOK, FA eR RARE, ORR, WEE RATA CRAB ICY bie MBiA200N. AHH RR iA As MA, TREO S, PRE, ACM GT Be eAiese: wwwall-terms com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss addition, various schools and theories are appearing and different theoretical perspectives are emerging, In particular, since the 1950s, mathematics, statistics and econometrics have become common techniques in theoretical modeling and empirical testing in economic research, Asa result, general readers without solid mathematical training are unable to directly track the development of modern economics. TH, Abiesoe tie, ABM BUA. Sibi TEAR BEY RUCHED, —Beie> For many years I have wanted to write a concise book similar to Ai Siqi's Popular Philosophy to introduce the elementary propositions in modern economics in a lively style and through accessible examples, rather than complicated jargon and intricate ‘mathematics, allowing readers to understand the basic ideas and analytic methods of modem economics, Further, the book would help readers understand the economic phenomena around them in their everyday lives. LERR- UA PRA, AB ARSC BF OKO SED JIBRE i ft a IE, ASE SARAH EE EL ALM, ASPB SRE ASA tL, UR TMD TY Ge IT, Ebi e THRACHWUMAALR, ma A) Wi Bee But, when I began to write, [found that this was much more easily said than done. Even writing a simple and understandable introduction for my own field economic. development proved difficult. Given the added distraction of my administrative duties, I was never able to get very far, despite several attempts LEE EK HB ARRI SY ME DABS AS Rie, PEAT AC: (Sr ea, REMI (ee Ni EMA He BMA, TEU RIE AE ACP i 4, BOVE. FPS) PEASE URE Thus, when Lfirstfound Professor Partha Dasgupta's book, Limmediately recognized the significance of his work. FAK, SR BNE AEM, AERA SB or PEAS re AT A Professor Partha Dasgupta has been my academic friend for years. We first met in October 1991. Thad been invited to the International Economic Association Conference at Windsor, England, discussing the 1977 Nobel Laureate James Meade's new book Agathotopia: The Economics of Partnership (Agathotopia means “good but not perfect’, while Utopia means ‘perfect but infeasible’). BALLERS AE HK, Fe ft, WLI HE 199147510 A, Ries enn BRERA — PEL, 181977 SEU URE PRR ok Moss Ss COLAC: KEG) CAgathotopia: The Economics of Partnership[1]> aE ke o> Meade had sought a ‘third way’in his book, a road different from traditional capitalism or communism. In the words of Kenneth KARE HET IRAE fle BEA MAIER ABS Ait Aiea. wwwall-terms.com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss Arrow, the Nobel Prize laureate in 1972, it was a book that combines ‘idealism and compassion with hard-headed analysis.” Bh, 197246 RARE ARE JEM BAL 7 WEIR ART eA EE FAA AUE SE PBT t During the conference, I commented on Professor Partha Dasgupta’s paper entitled “Poverty, Resources and Fertility: The Household as a Reproductive Partnership’ CEBU WERE SIM EE BL BERAMICK CGR. BEMAUE E: REE OED Afterwards, both his paper and my comment were included in a volume entitled Alternatives to Capitalism: The Economics of Partnership, published by the International Economic Association in 1993. JR, MATIC AUR ATT IG — ee BB FRHELO932E tH RII DIG CHE CEA SEMI EMR: Atk 2oRF (Alternatives to Capitalism” The Economics of Pattnership? “t. Since then we have seen each other in international academic activities, and our friendship has grown stronger. HABLA BM 2S BE A ne BP LT, Sch tai RRP. Professor Partha Dasgupta was born in Dhaka (capital of Bangladesh now and at that time in India) and attended Cambridge after completing his undergraduate education at the University of Delhi in India Professor Dasgupta received his PhD in Economics in 1968, and currently. hejis the Frank Ramsey Professor of Economics at the University of Cambridge and Fellow of St. John’s College, Cambridge. RAE IETS EAS a Pik GR AG IME A, aA FERUIRSHY , AEDES BASES EK SPOR LCT ii T1968 ESR LAT Y: RAE MS oe Ow FE, z eee Bet. Professor Dasgupta is an infémationally renowned economist, and he has received many honors fot his contributions to welfare economies; development economics; technological change; population, environmental and resourde economics and game theory. Professor Dasgupta is a Fellow of the British Academy,Fellow of the Third World Academy of Sciences, Member of the Pontifical Academy of Social Sciences, Foreign Associate of the US National Academy of Sciences, Foreign Honorary Member of the American Academy of Arts and Sciences, Foreign Member of the Royal Swedish Academy of Sciences, and he is a Past President of the Royal Economic Society and the European Economic Association. Ys PES BAS fe as TY ILE ER, “eR > BAY AUER LZ BREDA SE i SU A ND AS HE BT WMT THER, Bebe, BS LAE SETAE BE. TTL CATA FiBL SEBS. SOHAIL AA BG HOSE, SR Ae TR AHP ESM Ke DAERAH Professor Dasgupta was named Knight Bachelor by Queen Elizabeth II in 2002, 200247 SETA ERE TE. Td ERIKA RARER, 200447 Aiea. wwwall-terms.com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss won the 2002Volvo Environment Prize and the 2004Kenneth E. Boulding Memorial Award of the International Society for Ecological Economics, and received the John Kenneth Galbraith Award of the ‘American Agricultural Economics Association in 2007, BEALE ASS EP 2 9 A De THe, 2007 MRM MET PSE AE MT DA AN He MK In a rare honor, in 2004he was elected to the Royal Society, the oldest and most influential academy in the world. Fellows of the Royal Society include giants in the scientific history such as Isaac Newton, Charles Darwin, and Albert Einstein SHEA TE fe F 20044 FE TEE SE SWE, BSI LRT 2, WALI EAAK, Bee MEARE. ka. Ey WA Re Every year the Fellows elect 4new Fellows, and there are now 1, 300in total. In the past the Fellows were from sciemtific and ‘mathematical fields, and Professor Dasgupta is the first economist in the 350years of the Royal Society's history to be elected a Fellow. ES EE ee ALAR, WIA Sb ae fit, EAS RICE BLE ME BUR, TA Mi cr a Aa AE 9 er fm) AE x He is very likely to win the Nobel Prize in Economies for his remarkable contributions to environmental and resource economics. Wee WAR RAAT 1 EDA SE CE EB AN BEF PITAL I WR TT RAS ee DUAR PM Professor Dasgupta was both into ant Indian family of economists in 1942. PAB id ch PS BS 194244 th ET FUELS RENE AC, SEC BA SR AE iis father Amiya Dasgupta, who teceived his PhD at the London School of Economics in England, taught economics in India ftom 1926, and was respected as the father of moder eoonomics and the “economists"économist'in India. He had numerous students, including Amartya Sen, the winner of the 1998 Nobel Prize. dS Up BEN Dy SE PR Ee Pe L:, AA192645 i — EAE ENE BARES TE AF, BAY TIETCE RPE ZZ. ON TERA IPER, IAT FI 9984F RA RARER Bal SE AR Professor Dasgupta’s father-in-law was the 1977Nobel Prize laureate James Meade. BE SAS IT EEF FSCS LOTTE VAR LE TERE FO J Ata. However, Professor Dasgupta studied theoretical physics at the University of Delhi, and mathematics when he first arrived at Cambridge. He did not switch to economics until 1965. eam, EG 225 rls RE a IG PAVLOV, WIESE SA ME, ABS AH AB ‘At that time, the 1996 Nobel Prize winner Professor James Mirrlees received his PhD in Economics at the University of Cambridge and held the position of Lecturer RE PRAY, ZEUS > RAYE, HT SB Wt eB CP ER Tei Aiea. wwwall-terms.com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss at the department of economics, Professor Dasgupta asked Professor Mirrlees to be his supervisor, partly due to their common background in mathematics. Within three years, Professor Dasgupta completed three papers and received his PhD in 1968. Ae RAE SI, A SAP ay ALI, EMT SMX, T 1968E Like many other internationally renowned Indian economists, Professor Dasgupta’s reputation as a theoretical economist rests on his strong mathematical training, However, his economic research is not purely theoretical, but explores the development of human society and human nature, Teaching at Stanford University from 1989 to 1992 he vas jointly appointed as professor of economics and philosophy, and he also served as the Director of the Program in Ethics. iF 4 Ab PB MEU LEH: FE, DUE BUPIDIRIT RNAS MIRC LEE Ry HVE, MOREE T BCPTIBCE, MEA TR AT BAK HARBAAMAS, 1989B19924% fh ee AWA AY: Gee, alt gt (ET RRAMDEARO A, A, FEE MSA Ae PALS fh a PNY ffs In 1995, the Oxford University Press. launched a series of books, each giving a very short introduction to a particular field, and authors are well-known masters in academia. T9985 fae ASF HH ASCE HE HS — 8 fh STORE ERP SURI, PEPE PR ATK MMe When Professor Dasgupta agcepted ihe Press's invitation in 1999, he faced the same difficulty as I did in writing a Popular. Economics. It took him a full seven years to finish writing the book. 9A IU ESE AS eB A HL ike, MAT ARS — AR CORRE TE) BSR, SRA Yee Ete AE A Se Fe Through comparing the lives of two children, one living in Africa and the other in the United States, the book illuminates the economic influences of trust, households, conimunities, production organization, markets and government, and presents the achievements of economists from Adam Smith to the present day in the context of a key issue: what are the factors which determine whether a nation is rich or poor BUAEPE (EVES NOC ATS, RI BEE AE As PAB TSE FAS GS ERAT Ab AL PI AAT HEN, BRE HEE. EPH, TES. BORER Fa IE eS TE F. ORS 4 iD, Beare KAVA ARR — Ef L—_—4 FA AE BR Je Bt AD eR —$§$ HS SATE FERS From this examination, we learn that capital and natural resources, which are of public concern, are merely proximate causes in determining a nation's wealth. The fundamental factor is whether institutional arrangements are able to maximally motivate individuals to actively engage in working, learning, accumulation and MASP ESET EME, ABATE AYBEAS. AR BERL OLE es — AS FR CR a F926 Jo Bk RMU CET — 7S BA A IE EE WAP ME MTB TE TAYE CES Al, AR. QUST NEE. eAiese: wwwall-terms com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss innovation. This book followed his masterpiece An Inquiry into Well-Being and Destitution, published in 1993, and added new theoretical developments in economics and his own newly updated understanding of Smith's Question BAA AS PE CE fh 1993.47 11 BND % (RMD (An Inquiry into ‘Well-Being and Destitution > (M4 fili I: MET EERE TREE Aft Coat fl AE BY STS) AB However, An Inquiry into Well-Being and Destitution runs to 661 pages, with a reference section of 80 pages. ALKANE A, aT IG) IFIKOL RK, VHSB HE MASON. Professor Dasgupta dedicated An Inquiry into Well-Being and Destitution to his father, and wrote in the preface that the book was his response to the question his father initiated many years ago. The book attempts to convey to his father “This is what I think I know to be important, this is what I now believe, these are my values, this is how I think.’His father read several early chapters, and gave him some positive feedback TE RE CR am iD Re HE Ry CER Ps BUA ERIE SEATED TAIL VE RUC IE, “B, ALAR JRE AE EER, ERR CCA > Se BMT HX ERA ad mT. However, much to his regret An Inquiry into Well-Being and Destitution was not finished when his father died in 1992 ABS PRs: Sw La, aT fl 9 TE CED CA, A TOR REAPIOOIE MR BT, CHL RIED Wi AS AEE Ao Tleamt that Professor Dasgupta was working on this book when he gave the Yan Fu Memorial Lecture at CCER in September 2005. | receiyed an English draft in 2006and immediately recognized its merit. 20054295 325 Jr RE Wi BIE AP LEE OER Pl RAG S28 Be BE, SURI Anh IES (RAB 20064 BUCH Y fhe NIE SCHR FARE FR, 35225 Bee He introduces the achievements economists, have made in regard to Smith's Question ina concise and accessible way, using language with both a litterateur's elegance and a mathematician's accuracy. This is exactly what I wanted to write, but was unable to. I immediately suggested translating the book into Chinese, and promised to write a foreword for the Chinese edition LDL SC IB HE A HE GE SM 5 Hs I dA SET PAI) TROT AN BR, : REPS MARES AT PUN EC LEE A SCH TE BAZAR. As the Chinese edition goes to press, [hope it will help readers understand how economists observe the world and analyze problems from a rational perspective, and realize that a primary faetor in determining the wealth of a nation are its institutions, BLCERART PC PRAIA, BR PERG AAS AD PDE ZN BEE EE 2 COUT VA EES LS HIN Be HL FE A PTB TW, TEAL. AUR HEU RB — A we FE Aiea. wwwall-terms.com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss ‘hile the amount of capital and natural FRET RE, BEARS FRI resources, rich or poor, are merely the BUMMER ARR. reflection of a nation's wealth January 16, 2008 20084814 16H F At Langrun Garden pian (ate) [1] Agathotopia ii Utopia ill 6.9": Fea PEE Prologue ae Becky's world TOE Becky, who is 10 years old, lives with her parents and an older brother Sam in a suburban town in America’s Midwest 1028 fH UAE MALY Se BRAD BEF BE EAT RM a RI EE A, be Becky's father works in a firm specializing in property law. TERIA ROLF WE AL Sie bFLE. Depending on the firm’s profits, his annual income varies somewhat, but is rarely below 145,000 US dollars ($145,000). FE HATH AURAL, MAA AMAR), (HARD SIRT 145, 000 FTE ($145, 000) » Becky's parents met at college. WUE AI SCR HET: AF ASRS A UTR For a few years her mother workedin publishing, but when Sam was born she decided to concentrate on raising a family HWA ECHR AT MATE SLE. fA BEG DM ia, bee see Timi HEZ L. she does voluntary work in local education ‘Now that both Becky and Sam attend school, Bit, VEAP BC ES, Plt fe SWAB BLA TXT. The family ive in a two-storey house SEBO CE FEW NF Be Ithas four bedrooms, two bathrooms upstairs and a toiletdownstairs, a large drawing-cum-dining rom, a modem kitchen, and family room in the basement. PICA AG. LAT Be, BER ATES, fide SAAT. TRACE SE 2 PEACE There is a plofiof land at the rear - the backyard - which the family use for leisure activities EAA k—§] TEBE FERRER TED» ‘Although their property 1s partially mortgaged, Becky’s parents own stocks and bonds and have a saving account in the local branch of a national bank FE UAT i PHATE MRA, (LILES EP LEE BLE, I. HAE TRA RAT A A AT Fi—/MeB IRE. Becky's father and his firm jointly contribute to his retirement pension, TURE SS ALU RAT Se PT AEE fb FRE SM AE BE Tie also makes monthly payments into a SEL, (Wak 2 a fh 85 WY “MAT eAiese: wwwall-terms com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss scheme with the bank that will cover college education for Becky and Sam, TRI, TSH ROK SE UL BEANE YARED The family’s assets and their lives are insured, LEP AES IN T PALA RIS Becky’s parents often remark that, because federal taxes are high, they have to be careful with money, and they are. DENIS REE RB, NIBBLES Riri, AIA AES. ht E PEPE BLY Nevertheless, they own two cars, the children attend camp each summer, and the family take a vacation together once camp is over TE, APRA. AA PERRET, E24 Rs RAE BE Becky's parents also remark that her ‘generation will be much more prosperous than theirs LAB AYSC BRIE Bis WARE ARA SSL AT EAT Becky wants to save the environment and insists on biking to school. Dr Be EP BL, SEE ET: be Her ambition is to become a doctor. bys 4 — BBE Becky's home EMDEAES Desta’s world ReMi TEE Desta, who is about 10 years old, lives with her parents and five siblings in a village in subtropical, southwest Ethiopia LOE FEY ZEN GR SCANS EL 1 RR A Re FRA — AT HE A The family live in a two-room, grass-roofed mud hut. BAA AE TU) kT 9 ak HE Desta’s father grows maize and teff (a staple cereal unique to Ethiopia) on half a hectare of land that the government has awarded him, SESH TEBE Sh 20 HES 2S Eh APT TOR AUR SEARLE RARER ECA I — BREED © Desta’s older brother helps him to farm the land and care for the household's livestock, which Consist of a cow, a goat, and a few chickens: PELE TS PA, iE EN AASB ERE. LHS REE RileAL AB. The small quantity-of telf produced is sold soas to raise cash income, but the maize is in large measure consumed by the houschold as a staple. EBD TARE, ARAL TLC, ACR ATE OR BE yA LIEB AL Becky riding to school Fela VUES ATED: Desta’s mother works a small plot next to their cottage, growing cabbage, onions, and enset (a year-round root crop that also serves as a staple). SE PARIS Ae ATI A as ee Sh Te BAER ( PRE AB RE AP ELUATE, tA FRLECIEYD) In order to supplement their household income, she brews a local drink made from maize. FAT ANG ACEO, BLS KOR AR SE A AI Aiea. wwwall-terms.com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss As she is also responsible for cooking, cleaning, and minding the infants, her work day usually lasts 14 hours Gch, bie et. TH. RAE SUL, Aba Ai a LEIA Net 6 Despite the long hours, it wouldn't be possible for her to complete the tasks on her own, BORE PEA MIATA, hth At i GRA GAEF » (As the ingredients are all raw, cooking alone takes 5 hours or more.) CEDAR ABE AEN, FER SHEA STN.) sa So Desta and her older sister help their mother with household chores and mind their younger siblings. i 2 A ae AR TE MLA Be He BU IS TG Seo. Although a younger brother attends the local school, neither Desta nor her older sister has ever heen enrolled there BR Fs LT “NE BE. TEL SESE A ELLE A ARE RLY 8 Her parents can neither read nor write, But they are numerate DUM SEAR ASS, ABMS TLS. Desta’s home has no electricity or running water. ARR, RT FDKaK. ‘Around where they live, sources of water, land for grazing cattle, and the woodlands are communal property. They are shared by people in Desta’s village; but the villagers don’t allow outsiders to makeuse of them. AHTISAARI. cba A BEA As VIZ SBMA WDD EH, (UEC AS TOPE 9h JAAAPE MN Desta’s home Fel 22 FR Each day Desta’s mother and the gitls fetch water, collect fuelwood, and pick berries and herbs from the local commons ER, GAVE AL UNE 7K, HORE, MARA! EI RANGER» Desia’s mother frequently complains that the CELTS MINS ES HUE BL, RAK insurance scheme (iddir) to which he contributes monthly. time and effort needed to collect their daily | j.nsiy sl fir 2K In] AIRS 49 EAL, needsihas increased/over the years. ELT. There is iofinancial institution nearby to | HHMEIFOL ATE PURE BPH (etal SENT offer either credit or insurance. HS MRL. ‘As funerals are expensive occasions, Desta’s | ADL ATE Wiki, Te AE father long ago joined a community SCHAEFER SIM T — AGE HLL, EA EK PRP ea When Desta’s father purchased the cow they now own, he used the entire cash he had accumulated and stored at home, but had to supplement that with funds borrowed from Kinfolk, with a promise to repay the debt when he had the ability to do so LENE (PY SCH SE AAT EAA 1 AMET, MBDA T CRNA SAH, TRILL TEER, TF CR ATEAE AT HE 73 HOM to — ef Aiea. wwwall-terms.com/bbs ATMA RAIA, SIAL EAT, NATEsentieRis In turn, when they are in need, his kinfolk come to him for a loan, which he supplies if he is able to Boek, “oi IRAN HA AE AT et FAA, AAAI AE AI, te usher HAN Desia’s father says that such pattems of reciprocity he and those close to him practise are part of their culture ESE ANS, AH AT A RAR S RY ER AA SC Be Fle says also that his sons are his main assets, as they are the ones who will look afier him and Desta’s mother in their old age. BIBRA LF a] te AI DARA fle i tH (R, LFS HLA. Desta at work EAE SF) Economic statisticians estimate that, adjusting for differences in the cost of living between Ethiopia and the United States (US), Desta’s family income is about $5,500 per year, of which $1,100 are attributable to the products they draw from the local commons. RRB ATE SEEN I ARE SW ANSEF 2 il 1 CNC PRELVE— RRA K BE 550038 Tes Stee MOORE MLA eae HAA LAT TRA Oy However, as rainfall varies from year to year, Desta’s family income fluctuates widel Ay Ay EE eS ABT ARAL, HELLS ANIA A RABE 5 In bad years, the grain they store at home xgets depleted well before the next harvest. FEW ASEP AY FR, SCE CF NH PUES — MARE, PO HER. Food is then so scarce that they all grow weaker, the younger children especially so. ROR Z, AMMAR, AFT ESHt Itis only after harvest that they regain their weight and strength RAMS TTT, MAT AL HAA HERS . Periodic hunger and illnesses have meant that Desta and her siblingsre somewhat, stunted, Fe SEE ESLER A a GE a A BY Fe As HAL A A BE Ae FIER. Over the years Desta’s parents have lost two children in their infancy, stricken by malaria in one case and diarrhoea in the other. DGEDDK, MERA AT FPWR TERA, ZEBUL GER RGT » There have also been several miscarriages BRIE ZIP, LETS AERIS aL LUC Desta knows that she will be married (in all likelihood to a farmer, like her father) five years from now and will then live on her husband’s land in a neighbouring village. SER, WS Ree RAD ERR MRM IBA LERRD PRAMS A ie, ASAE BEAD AEE. She expects her life to be similar to that of her mother. UBD, hh: AEH A ATE Phe The economist’s agenda iiee dae aed eAiese: wwwall-terms com/bbs AEM RALAA, MIATA AI PERIAESeen: Rss That the lives people are able to construct differ enormously across the globe is a commonplace. IESE Ah ANNE BH EE ROBES SEAM IT. In our age of travel, itis even a common sight PERMA TENE FEMI AR, i HE KN SFE LAL AIIM That Becky and Desta face widely different futures is also something we have come to expect, perhaps also to accept PTE BUSI Ee SPSS, VAN EEE EG 23 JOR AK. Nevertheless, it may not be out of tum to imagine that the girls are intrinsically very similar. They both enjoy playing, eating, and ‘gossiping; they are close to their families, they turn to their mothers when in distress, they like pretty things to wear, and they both have the capacity to be disappointed, get annoyed, be happy. PR it, CORRAL, IT BRE AR PSA, HAR eat RMAC. Fee. A TERESA REA, Seb) 5 aE Rie TEASE ATI, SS CARER EUNTUR: ah aA EK ERENT FR a As AAT AK HE. FIT, URI EBT. Their parents are also alike, They are knowledgeable about the ways of their worlds. They also care about their families, finding ingenious ways to meet the recurring, problem of producing income and allocating resources among family members - over time and allowing for unexpected contingencies. RMAINISCRE AE: Bt A ADL eS. ATTRA Le ns OAT Reto CIRCE. HEA LN HU A Gg AS GL i], ee APE BETTE Ae Ee ZA ct PE BEAST SEY SE So, a promising route for exploring the underlying causes behind their vastly different conditions of life would be to begin by observing that the opportunities and obstacles the families face are very different, that in some Sense Desta’s family are far more'restricted in what they are able to be and do than Becky's. FAC, SEALER SEE RAHAT ERE AE CRAAR MRA, —AHTSET] MAF AEM, BEEBE AS RE ETE AY A ALAR AST LG A He MSE UE, A RE ERE AGIA FAR AS ALE ME SA be, SRbe DFE He ESE BH Economtics in greabmeasure tries to uncover the processes that influence how people’s lives come to be what they are. AAAS AGT Z ATE TIER PE, He Fase URE The discipline also tries to identify ways to influence those very processes so as to improve the prospects of those who are hugely constrained in what they can be and do. i LEER LE AR A PANE EE 2 IR EERERE, TTP AE BE A SAR Hy USC i CE ML, Dl i US Ul E97 TD TE #2) HR PRR a FAA i The former activity involves finding explanations, while the latter tries to identify policy prescriptions HAT 9 IE SIRE, a AN Mi ET FPR BT ‘Economists also make forecasts of what the BEE AMIE eR Nea Ye TAR eAiese: wwwall-terms com/bbs ATMA RAIA, SIAL EAT, NATEsentieRis Kase conditions of economic life are going to be; but if the predictions are to be taken seriously, they have to be built on an understanding of the processes that shape people's lives; which is why the attempt to explain takes precedence over forecasting LS EAT A PEE Pie BA AEA AVHRR, Ae Fes SEE SSB AAV AR AS NE i, RUE FRM SA ROLE TP (LE A 5 7H The context in which explanations are sought or in which prescriptions are made could be a household, a village, a district, a country, or even the whole world - the extent to which people or places are aggregated merely reflects the details with which we choose to study the social world SPADA SFE HBr A ET BRP PBS AR ANTAL. BEAL TT ASE EME A At he RPE AL TBAT ICI AA oe ELE MeN. Imagine that we wish to understand the basis on which food is shared among household members in a community. Household income would no doubt be expected to play arrole, but we would need to look inside households if we are to discover whether food is allocated on the basis of age, gender, and status. BF RBA TS ein UPR, PWIA ERE NR EAT SPRY TER AS Re ELA ZEEE AEE; (RAE T Wee FEAT G HESS Eh te SD ADGA, Raa RAE ek If we find that itis, we should ask why they play a role and what policy prescriptions, iff any, commend themselves. RRA, RATES Fetch, Jaf Zikme a a ie, A eet eee Coes ies. In contrast, suppose we want to know whether the world as a whole is wealthier today than it was 50 years ago. AGZATHR, HER UAL F, RRA AB BE AIH LESO4F FT, REMAIN BA. As the question is about global averages, we would bejustified in ironing out differences within and among households. Fai 4S elt SEB A, RABAT HT DAS A Ute EN ANACREZ led HEF. ‘Averaging is cequited over time as well FOES (LAE RS IS BLE FP tt SE Da fig. The purpose Of the study and the cost oF collecting information influence the choice of the unit of time over which the averaging is done. DER Bra a SE (FLA FF AES TES. Re Ps MTR The population census in India, for example, is conducted every ten years Goda, CREAT AEST LOA TK. More frequent censuses would be more costly and wouldn’t yield extra information of any great importance. PRAM AD Ree Me, ii AIPA SAS SU I EA BL In contrast, if we are to study changes in the volume of home sales across seasons, even ADS, URI A i BE OF FC id 9 PHO RAT, UNA Ne NTT ee ‘Rite: wwwall-terms.com/bbs AIMEE ARAN, AE ARI, AI PERIAESeen: Rss annual statistics would miss the point of the inquiry, ALAS REAR EME) Bik Pd Monthly statistics on home sales are a favourite compromise between detail and the cost of obtaining detail (PS—TAT PHS, AER FE ei AE AM TA A Fi A IEA, Modern economics, by which I mean the style of economics taught and practised in today’s leading universities, likes to start the enquiries from the ground up: from individuals, through the household, village, district, state, country, to the whole world BURR —§_ faite, Fan I RAED BL IF SES EEE —— AST A i EA Fe a BI BR WAGER, BUA. AL. i, NB, Fat, EB In various degrees, the millions of individual decisions shape the eventualities people face; as both theory, common sense, and evidence tell us that there are enormous numbers of consequences of what we all do. SULT MTA ESM AEE EAR A WOT Mr i Be TA oh: Rie. TUM Seas UR, RABE MAI. HRS Find AEE Some of those consequences have been intended, but many are unintended. Sk HRP 1) — MER AI FY, ALARA PMS) SORA TAS fig There is, however, a feedback, in that those consequences in turn go to shape what people subsequently can do and:choose to do. Ri, EBM Set A — Ah DA iM AS ee AEF KAHL A, Sie FR AMET A 6 When Becky’s family drive their cars or use electricity, or when Desta’s family create compost or burn wood for cooking, they add to global carbon emissions. 2 VIE BOS RA 46 ALL Hs at AE 4 EE — Fe HLS A AA ACESS, (UAT ERE SRA, SoHE CRA AIM. Their contributions are no doubt hegligible, but the millions of'such,tiny contributions sum to a sizeable amount, having consequences that people everywhere are likely to experience in different ways. ik i RT em A, AL FGA DL itt, BO AP ATT LAS CR, SICH FR A HY AMIR FT HELE WG I PAR It can be thatthe feedbacks are positive, so that the whole contribution is greater than the sum of the parts. RUA ATT REA TERN”, Past ie MESKT AMAL A. Strikingly, unintended consequences can include emergent features, such as market prices, at which the demand for goods more or less equals their supply SLATED Re. RATA EE AS IE SR A Se LAR TE HE TATE, (Ae ROE TTS Pa GR AE AT SH Earlier, I gave a description of Becky's and Desta’s lives. POZE VEAP EEE a ‘i i ‘Understanding their lives involves a lot ‘more; it requires analysis, which usually SEE E SSA Ob IEG, I AR SEAMS ZEs Cr BET eAiese: wwwall-terms com/bbs ATMA RAIA, SIAL EAT, NATEsentieRis Kase calls for further description. Si. To conduct an analysis, we need first of all to identify the material prospects the girls’ households face - now and in the future, under uncertain contingencies. JS BEAT SBT» BATES Fe BE IS BA PR ARETE EEF FTE 9H Hk — BUEN, EAT AKA. Second, we need to uncover the character oF their choices and the pathways by which the choices made by millions of households like Becky’s and Desta’s go to produce the prospects they all face. SEU, BRAVA PRA EN A i FRE. DARL Tho UE AUG LE AEE RE TAL Psa ML OT AOR ee EIT xa AY. Third, and relatedly, we need to uncover the pathways by which the families came to inherit their current circumstances, HOR, AH, PRAT wg BE A as AE EAE iT A PEA ASTER. These amount to a tall, even forbidding, order. DL bee, APD ETCH, ADR E Hee AE AER, Moreover, there is a thought that can haunt us: since everything probably affects everything else, how can we ever make sense of the social world? pe BRATT SL hie ARC AE Ld AK BE AALS BERR TS ES EB AS TT Tite eRewaR TT EME. BLATT AT FEISS EI HEL FE? If we are weighed down by that worry, CURR TR RR HEL, BRA LAS though, we won't ever make progress, SEAGATE (TE A. Every discipline that I am familiar with draws caricatures of the world it order to make sense oft. ROMER TER, AML FAA FE” HEFT HHL FL AS fig. The modem economist does this by building models, which are deliberately stripped ARP LARA 5 DOMES 9 ME BE RUBY TMS stripped down, down representations of the phenomena out | saya gp fils. there. When I say ‘stripped down’, I really mean “SRA RR MAIN, FRAG HT PAB. Itisn’t uneorimon among us economists to focus on one or two causal factors, exclude everything else, hoping that this will enable us to understand how just those aspects of reality work and interact. © Ay nS AA BE Bi HE INE IL, JERE AT LAX AE (EER EWE ISEB uf eA TPE ADA. The economist John Maynard Keynes described our subject thus PANG LEE fs “Economies is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world.” “Begee TAs CHE ALT a HEA A BU. ” it ‘Rite: wwwall-terms.com/bbs AIMEE ARAN, AE ARI, AI PERIAESeen: Rss As economists deal with quantifiable objects (calories consumed, hours worked, tonnes of steel produced, miles of cable laid, square kilometres of equatorial forests destroyed), the models are almost always mathematical constructs. SERGE AO HENS BALA GFE AaB, CARA. AE PRIMA. AEA SE A Ate Re PMA PAB EAT OF FC ARIENT (6 PFS REL TL PE FB TE TRI. They can be stated in words, But mathematics is an enormously efficient way to express the structure of a model; more interestingly, for discovering the implications of a model. RHEE HI DA POR BGE, (4 {ERR BOUT, BORE PRE RE ITT, FZ ah SU AE TAYE TL OE RS Me Applied mathematicians and physicists have Known this for a long time, but it was only in the second half of the 20th century that economists brazenly adopted that research tactic; as have related disciplines, such as ecology. IEE ADB? SHE RA DLA BR, ‘a. RD NATE ATP AE FSX BOP ALTS WUE 1:20 IEEE FOP ie RIE AL, da AE Aseoetlt Lit. The art of good modelling is fo generate a lot of understanding from focusing on a véty small number of causal factors HELLA At BOL ARK WR RET ee, oe BO AVE ASAT LGA MSI Se HE 19 in Tsay ‘art, because there is.no Tormula for creating a good model. RAL 2A aia, Fea — APH HS AYE FE HET A The acid test of a model is whether it discriminates among alternative explanations of a phenomenon, ARRAY TED RY Sw ERT HEM — TIRE MEE SH, PES RAE IB — 4 Those that survive empirical testsare accepted ~at least for'a while ALGAE T STEVIA AF SF K— 35 -b fe 46 (RA —& )L—10 3) Aik A ME EE M1). ~unlil further evidence comes along that casts doubt om them, in which case economists go back to their drawing board to create better (not necessarily bigger!) models. Ja, oA A PUA AERA, BREA RAs Sak) BUH ‘And so on. JT AS SHE a ARIE ASHE Te The methodology Thave sketched here, all too briefly, enables economists to make a type of prediction that doesn’t involve forecasting the future, but instead to make predictions of what the data that haven’t yet, been collected from the contemporary world will reveal FREI BMI TOE, WALLER SUA — PIAL, BC TRIFLE AORN FIM, i JE BEDS Bids SAHA ami TEE Pa E38 A DS ERAN REO TS VERA A. This is risky business, but if a model is to STEP ARS OTIT, (FL RA Aiea. wwwall-terms.com/bbs ATMA RAIA, SIAL EAT, NATEsentieRis Kase iMluminate, it had better do more than just offer explanations after the events ROT» Uniil recently, economists studied economic history in much the same way historians study social and political history REA RL LITT, ANGE SPR FOALS BGG 2 TE — EE FIL, AMA LSI A A TE They tried to uncover reasons why events in a particular place unfolded in the way they did, by identifying what they believed to be the key drivers there. SULA EE ARATE Be A SUDA, ERAS RTA AT ‘The stress was on the uniqueness of the events being studied EPRI TER MEE LR, DEAT HARI SLA BEE PE Hee A classic research topic in that mould involved asking why the first industrial revolution occurred in the 18th century and why it took place in England SAPOTACEAE: PRAT ULM div Be ETE 18 28, WE I EEE ‘As you can see, the question was based on three presumptions: there was a first industrial revolution; it occurred in the 18th century; and it was based in England. PRATT AG es ioc pete TH EAE TH MRBZ Li: HAs UCT Mbitisin Fe 1g) Es AE HE SEE, Alll three premises have been questioned, of course, but there was an enormous amount of work to be done even among those who had arrived at those premises fromi historical study ASOD AEE ORAS Og BI et Pe iS GE VA a i RAHAT, 0 ELAR seme i KS In the event, the literature built round those questions is on8 of the great achievements of economic history SRE, PE ASH il TT SH AT AON TE Se Pe AY AE Te Tn recent years economists have added to thata statistical approach to the study of the past ELBE, OR ERATA Heat HORT IMA T Seite TT The new approach stays Close to economic OA RTPA EE HE Bee uncover those features that are common among economic pathways in different places, at different times theory, by laying emphasis on the generality | (2 Fez) — AE L, GIRLIE of the processes that shape events. ER. Tradopis the view that a theory should 3) AML, — AROS THT LA BRD SRE. Anaya Admittedly, no two economies are the same, but modern economists work on the commonality in the human experience, not so much on its differences, WR, A sce — BY, AAACN TOT FEY EAE POMVIEIVE, MIRA Ee AES Say, you want to identify the contemporary Elta, eRe 1 tH Ae AN LE IT Aiea. wwwall-terms.com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss features in Desta’s and Becky’s worlds that best explain why the standard of living in the former is so much lower than in the latter. AP EE FEY Fada ise AE VE Oa Fa Pe ET ak AR Tmt. ‘X body of economic models tells you that those features are represented by the variables X, Y, and Z. You look up international statistics on X, Y, and Z from a perhaps, 149 countries. “HSE BOW VEO, DORORE EHH REX. VMZREA EAM RT X, VAIZ AY RSET BE, PAR 149 HR. The figures differ from country to country, but you regard the variables themselves as the explanatory factors common to al the countries in the sample. AAMT AEE, (GS A 5 BO a EE PER ABLATION REAR J In other words, you interpret the 149 countries as parallel economies; and you treat features that are unique to each country. as idiosyncrasies of that country. BTA DE ARES 149498 38 PEA CERT UR, TASES TR SCAT AE 4 PEF EH 6 OF course, you aren't quite at liberty to model those idiosyncrasies any way you like. PEAR Os AS A BL a I A Uc Me Bieter et. Statistical theory - which in the present context is called econometrics - will set limits on the way you are able to model them, Bite He PE TL FASS Aa OE ET Ti. On the basis of the data onthe 149 Countries in your sample, you can now test whether you should be confident that X, Y, and'Z-are the factors determining the’standard of living. DLR AOE ASH 3 1494 FR HEH AD ASERL, PSE RET Dit ial et, BBE BAA HF HX, VAIZ RAE BE ER ACP NE Suppose the tests inform you that you are entitled to be confident. Then further analysis‘withthe data will also enable you to determine how much of the variation in the standard of living'in the’sample is explained by variations in X inthe Sample, by variations in Y, arid by variations in Z. BMRA RATER, OTT (Ri, UB RA NE — 2 BT AON, Fea OP AY. BEACH DRE RAX MISE IE, & DHE HAYA hiksE, BP RE ZABLE Those proportions will give you a sense of the relative importance of the factors that determine the standard of living. ie HELE Bi Se SAAN ACE IY FARE YE, Set — MB PEUGR. se 80% of the variation in the standard explained by the variation in X in the sample, the remaining 20% by variations in Y and Z. You wouldn't be unjustified to ABE HO8O% I AEH 7h FAYE ALT VBE XRISEFLIERE, TRIE M2075 HY AZM RACE, WA Kea BA J LH 2 EH 2 KSI HE conclude, tentatively, that Xis the prime _| #F2EE- explanatory variable There are enormous problems in applying | Set AMPA aR eAiese: wwwall-terms com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss Statistics to economic data. Set WAS ih SE AC fd For example, it may be that your economic models, taken together, suggest that there could be as many as, say, 67 factors determining the standard of living (not just X,Y, and Z). AL, Fe BZ — RE a NE AGN, Bere EMCI eA OTR ZS (AMDUEX, YHIZT) » “However, you have a sample of only 149 countries. Bill, HSOFEARP RA 149K. ‘Any statistician will now tell you that 149 is too small a number for the task of unravelling the role of 67 factors. HEB ERS EEK, Boe her NLT aes. 149i PAL FIERA T ‘And there are other problems besetting the econometrician, HEA SE th el ED A Pe AE fil. But before you abandon statistics and rush back to the narrative style of empirical discourse, ask yourself why anyone should believe one scholar’ historical narrative over another's ATE ORFS SIRO ELISE WR Ht AA At 3 tH Sek — RE AS SE RL MPA (ts. ‘You may even wonder whether the scholar’s literary flair may have influenced your appreciation of her work WRUAEIERC AE, REAR REA MEE FASS AMRU IR Pa ne PE H ‘Someone now reassures you thabevensthe author of a historical narrative has a/model in mind BEA A BORAT MSHI, DECK BOE RSERUR MEMO Ah, fee Ai TE Hie tells you that the author's model influenced her choice of the evidence displayed in her. work, that she chose asishe did only after having sifted through a great deal of evidence. (HEURES, Ee NR SE et FT ES ARS RAM AR ER NAS i. AE weerecae ‘You ask in response how you are to judge whether her conceptual model is better than someone.else’s. PR EGTA il, RL AA ve SPOR EAT WAM. Which brings us back to the problem of testing alternative models of social phenomena. SEAS ial SER TAL BOA RMA be In the next chapter we will discover that historical narratives continue to play an HERR, RR ARSE RUE AEST TS ek ee ae A te modelled is only one of them), important role in modern economics, but Hy ese oeRbTa Rane they are put to work in conjunetion with rani model-building and econometric tests. There are implicit assumptions underlying | (fe yi RLS HF HOSE RIA ERA econometric tests that are hard toevaluate | Ay WIPE, ALR iMtany Co (how the country-specific idiosynerasies are | gary fase ale 4y fy eR RA BCH eAiese: wwwall-terms com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss So, economic statistics are often at best translucent, At, LF MRS RET OP Ttisn’t uncommon for several competing models to co-exist, each having its own champion. BOP AEA. BE Fm 4 4E, ES BAA CMH ES, tReet FH. Model-building, data availability, historical narratives, and advances in econometric techniques reinforce one other. UUM, BOBAUTT ALVES Sse HE ROR, RET E, Belt (a) AIG th 96 5 ‘As the economist Robert Solow expresses it, “facts ask for explanations, and explanations ask for new facts’ Tn this monograph, I first want to give you a feel for the way we economists go about uncovering the economic pathways that shape Becky’s and Desta’s lives. PERA EG, BUT Fe ea RE UT BR EE RE TE HT SW Bi we VEAL DE TN TAR. Tshall do that by addressing the three sorts of questions that were identified earlier as our concern. SOMME A HL BEF REA SAN Bi, TEMAS TES « ied T shall then explain why we need economic policies and how we should go about identifying good ones. LEP RE HE RE, ath AAR A) Se a BE SEF BN FE HP A HIRT. We will certainly build models as we go along, but I shall mostly use words to describe them. FRE AKL PRS EB, (AROS CFs SE. T shall also refer to empirioal findings, from anthropology, demography, ecology, ‘geography, political science, sociology, atid of course economics itself. PIOHEISAE AR, SOREL ARE, ALI, ease. hh i : But the Tens through which we will study the social world is that of economics. We will assume a point Of view of the circumstances of living that gives. prominence to the allocation of scarce resources - among contemporaries and across the generations. My idea is to take you on a tour to see how far we are able to reach an understanding of the social world around us and beyond RMA, Wiehe LE, Be POI TE RENE TI TE ET FEM ARASH Chapter | Macroeconomic history RE EMAL Tsaid one of the things we need to do if we are to understand Becky’ s and Desta’s lives is to uncover the pathways by which their RAWLS EA GE AUR EVE TIE ERAS, USA Wt PERE RE DARA. AEN eH AE Aiea. wwwall-terms.com/bbs ATMA RAIA, SIAL EAT, NATESeen: Rss families came to inherit their current circumstances. SLA AR EMER FLAT AR This is the stuff of economic history. THIER LOA. Tn studying history, we could, should we feel bold, take the long view - from about the time agriculture came to be settled practice in the northern part of the Fertile Crescent (roughly, southeast Turkey today) some 11,000 years ago - and try to explain why the many innovations and practices that have cumulatively contributed to the making of Becky’s world either didn’t reach or didn’t take hold in Desta’s part of the world RA LALA, MA KIB, PULA LEM GG —2e, AE 11, OOOSE RI, MATER A TRALEE OK PAEDLENML ECAR) FPGA BEY BYR, DORK IRR Fs tte erie & 2 te NIE Ab FEE RL eh ae #83 FBLA ROGER EA AT Sm, FRAC TE CMe LEP HS, BRP TEAR RET FN PF TEE ‘Scholars have tried to do that. A RA ORES The geographer Jared Diamond, for example, has argued that people in the supercontinent of Eurasia have enjoyed two potent sets of advantages over people elsewhere. (ia, WACK TOR ti, ABE AIM PRAY ES, ATR ZEW EAB 1) AAS AS AN tRS First, unlike Africa and the Americas, Eurasia is oriented along an east-west axis in the temperate zone and contains no overpowering mountain range or des@it to prevent the diffusion of people, ideas, seeds, and animals. Second, Eurasia was blessed with a large number of domesticatable species of animals, which made it possible for humans there to engage in tasks they wouldn't have been able to undertake on their own, EGG) SARA AAA, REA G AOE DARE i RANA, BEATE SRR rs ATED ORES A AD POTRALE, DAD EDR AE AB ets FLU, REAR RAE, A ABET PLANES RTE HAR AK BL AA AIRT BAA ie Se AE AE UGEAT AN). Economies grew and délined in different parts of Eurasia at different times - now India, now Chinaynow Persia, now Islam, now one region in Btirope, then another - but the supercontinent’s size and orientation meant that, during the past 11,000 years, humanity’s achievements there have been rather like the performance of financial stocks: declines in some regions have been matched by growth in others. FEARS, ZEKE ABA RK, Bar MLR, AT IPE CINE, AINE PR, Ain: FTL EP UMZE HE, FUR EUR fae ANU, HT AAMT BUTT oh Zin ABA ey EAB AR OK H, WAI, OOOtEB, AASCU AY RC A RA NT A ELH A YM: FE: Deen Ae AEB AE Hef, SHOX AMES, UES By the 16th century, the technological gap between the seafaring nations of Wester Europe and the Americas was so large that a combination of guns, steel, and European BIT lola, PALE A 08 WK EA eA ABZ A EAR EEE AS Ky WRT IEA. Beeeal TAN» — ANAC A a ‘Rite: wwwall-terms.com/bbs ATMA RAIA, SIAL EAT, NATEsentieRis Kase ‘germs enabled tiny groups oF invaders to conquer the New World. SAS SS FNAB Becky’s very successful part of the world is in effect the outgrowth of a societal transplant that took place less than 500 years ago. SEAS RATE Anew, SEI EAA BSOO TRAN BS eM AR. GDP as measuring rod ULGDP 9 RFF In order to talk of success and failure, as we are doing here, we need a measuring rod aT AGRA IN EIS PET DAI Wc, BRANT EE TERI The one most commonly used today is gross domestic product per person, or GDP per capita Bai ALR nT Ra A SOFA HEF SMELYCASSGDP) - Economists may have invented the concept and may have also warned against its many limitations, but, like it or not, the term is so ingrained in public consciousness, that if someone exclaims, ‘Economic growth!”, we don’t need to ask, ‘Growth in what?” - we know they mean growth in real GDP per capita, which is growth in GDP per capita, corrected for inflation or deflation. LE SAT St, SRT ESOT, AEA Ei Uf, TE GA Be TEAL Wei Loh RA AP Rs ie, BALA its BE Tad EARS Tt SARL EAE Di» Seb A KIGDPHIG TY, sh AE TRH i GB a i lH AERA AMIGDPHIK T « A country’s GDPis the value ofall the final ‘goods that are produced by‘its residents in a given year. ASFA HIGDP EHH“ TI GUAT FE) EE 9 FS a DE ASIA HAMEL. Itis a measure of an economy’ total output EAL TR MET RET But when a commodity is produced and sold, the price paid forthe purchase finds its way into someone’s pocket. Se PRT am HE EP ORAL RNY, TSE WE BE RHE fa. So,GDP can be migasured also by adding up everyone's ingomes - Wages, salaries, interests, profits, and government income BREA, GDP HEAT DAES A ACA in SRUG, LR. HH. AB. Ali KB HOY BA GDP and national income are therefore two Hany LLB, GDPAIA Luc A sell He sides of the same coin BGT. Although GDP is often said to measure HRYRGDPEA i VEADACOTIROE Be» (HIS wealth, it doesn’t do so. GREE TEASE MS GDP is a flow (dollars per year, say), GDP NAR CHEM, RICE) , whereas wealth is a stock (dollars - period). | jill aE SEN I AM RTBO As the concept of GDP was developed originally for market economies, the values imputed to the goods were market prices. FAT GDP HIRES REA T saz AS WOPE REA, “ELITR MEL A ESOT ‘Rite: wwwall-terms.com/bbs AIMEE ARAN, AE ARI, AI PERIAE