Sunday, 25 June 2017

India & China contributed to 50% of the world's GDP till around year1850

India & China contributed to 50% of the world's GDP till around year 1850

The Economic History of the Last 2,000 Years in 1 Little Graph
By Derek Thompson

That headline is a big promise. But here it is: The economic history of the world going back to Year 1 showing the major powers' share of world GDP, from a research letter written by Michael Cembalest, chairman of market and investment strategy at JP Morgan.

I'm guessing that your first question, if you started scanning from the left, is: Wait, India was by far the biggest economy at the dawn of AD? Yup, India.

In Year 1, India and China were home to one-third and one-quarter of the world's population, respectively. It's hardly surprising, then, that they also commanded one-third and one-quarter of the world's economy, respectively.

Before the Industrial Revolution, there wasn't really any such thing as lasting income growth from productivity. In the thousands of years before the Industrial Revolution, civilization was stuck in the Malthusian Trap. If lots of people died, incomes tended to go up, as fewer workers benefited from a stable supply of crops. If lots of people were born, however, incomes would fall, which often led to more deaths. That explains the "trap," and it also explains why populations so closely approximated GDP around the world.

The industrial revolution(s) changed all that. Today, the U.S. accounts for 5% of the world population and 21% of its GDP. Asia (minus Japan) accounts for 60% of the world's population and 30% of its GDP.

So, one way to read the graph, very broadly speaking, is that everything to the left of 1800 is an approximation of population distribution around the world and everything to the right of 1800 is a demonstration of productivity divergences around the world -- the mastering of means of manufacturing, production and supply chains by steam, electricity, and ultimately software that concentrated, first in the West, and then spread to Japan, Russia, China, India, Brazil, and beyond.

Paul Kedrosky)

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The Economic History of the Last 2000 Years: Part II
By Derek Thompson

The graph above is an economic history of the world, after 1 AD, from a
research letter written by Michael Cembalest, chairman of market and investment strategy at JP Morgan. I posted it yesterday with this summary: "Everything to the left of 1800 is an approximation of population distribution around the world and everything to the right of 1800 is a demonstration of productivity divergences around the world."

But that's not exactly right. The Industrial Revolution that occurred in Western Europe around 1800 did dramatically raise productivity and personal income far above what any country had seen in the previous millennia. But in fact, GDP per capita -- an approximation for productivity and income -- started to diverge centuries before the steam engine.

What follows is a deeper -- but still shallow -- dive into 2000 years of economic history, this time through the lens of GDP per capita around the world. This metric helps us identify where growth in wealth occurred, as opposed to just growth in population (e.g.: India and China had thee-quarters of world GDP in 1 AD because they had three-quarters of the world's population).

The first graph is a good picture of what we call the Malthusian Trap. For the vast majority of human history, the most important determinant of wages was births and deaths. With too many births, income fell. After a plague, a roughly stable supply of food and goods shared among a smaller number of people made everybody richer. That is, until births rose, and incomes fell again.

But between 1000 and 1500 wages in Western Europe started to inch up thanks to moderate technologies and agrarian organization, such as three-field rotation and horse harnesses.

... and if you take graph the GDP/capita data between Jesus and Napoleon, you can see even better a real divergence between Western Europe and the rest of the world.

But the thing about the graph above is that the X-axis plays a game of hopscotch. We have data (or an approximation of data) for 1 AD, then another 1000 years later, and another 500 years later, followed by 100-year increments.

So what happens when we zoom back in to the year 1500, when century-by-century data becomes available, and play out the story until the 20th century? You get a really good look at the massive power of the Industrial Revolution, which makes all income growth before about 1800 look pathetic.

There are enough theories about why the Industrial Revolution happened in northern Europe between 1700 and 1800 to fill a million blog posts. Two well-known recent additions are Guns, Germs and Steel, which focuses on the peculiar and advantageous geography of norther Europe and its natural resources, and A Farewell to Alms, which provides the quirky but often persuasive explanation that the Malthusian Trap ironically populated England with workers whose upper-class values made them biologically better adapted to invent and use modern technology.

Our last graph is the full 2000 year sweep of the world through GDP/capita (mind the X-axis, of course). The industrial revolution didn't happen everywhere at the same time, but it did have the same effect everywhere: massively rising GDP/person.

The Japanese and Chinese stories are the most dramatic. Japan, which was behind Eastern Europe before World War I, nearly caught the United States by the end of the 20th century. China, which fell behind Africa in the middle of the 20th century, is now perhaps the most massive success story in industrialization history.

The Economic History of the Last 2000 Years: Part III
By Derek Thompson

Early this week, I posted a little graph of the economic history of the world, after 1 AD, from a
research letter written by Michael Cembalest, chairman of market and investment strategy at JP Morgan. On Wednesday, I posted follow-up graphs to track GDP/capita -- a rough proxy for income, and even productivity -- through the last 2000 years. Here's the last installment.

You can call the graph below an "economic history of the world since Jesus." I've graphed each major power or region's share of world GDP since the year 1 AD (the data is in a PDF
here). There is no data between 1 and 1000 AD, so I've put a little space there. The data does not provide for a clean X-axis -- note the differences between years -- but it provides a good rough picture of the last 2000 years and a nice illustration of the breakaway wealth of the U.S.

The first question I had when I first graphed the data is, How do India and China account for between 50% and 60% of the world economy for the first 1500 years AD? Until about 1800 when the Industrial Revolution sent productivity skyrocketing at an unprecedented pace, income growth was slow and and relatively even around the world. As a result, the regions with the biggest economies were basically just the regions with the biggest populations.

So let's look at populations. This graph, from the same historical data set, shows the distribution of people across regions for the last 2000 years. As you'll see, it's a much more static picture than GDP. China, India, and south-east Asia are still among the densest places on earth, just as they were 2000 years ago. Western Europe is still highly livable. Africa's share of the world's population has rarely deviated from 7% - 13% band. Two millennia ago, Japan had 1.3% of the world's people. Today it has about 2%.

The West started to
outpace the rest of the world after 1000, but its rate of technological advancement was pretty pathetic compared to what we saw after the 19th century.

Here's a stat to sum that up. According to A Farewell to Alms, income per person in Western Europe doubled between the 1310s and the 1450s and then fell by 25% in real terms by 1600. Why? Because of The Plague. By reducing the number of people competing for scarce food, the Black Death did more for average incomes than any existing technology of its time. "In the preindustrial world," Gregory Clark writes, "sporadic technological advance produced people, not wealth."* That is the Malthusian Trap in a nutshell. Look how similar GDP across regions was for the first 1700 years since BC ...

... and now look how wild things got since the Industrial Revolution (pay particular attention to the US in light blue and China/India at the bottom).

In one fascinating passage of Clark's book, he produces a table of laborers' wages measured in pounds of wheat, starting in Ancient Babylonia and taking us through 1780's England. This statistic is so important because it measures what ancient workers wages could actually buy. In the last 200 years, food has gone from 80 percent of our budget to about
10 percent. That's a great indication that we've gotten richer and that our wages are stronger relative to the stuff we want. But for thousands of years, wages measured in wheat didn't grow. They yo-yo'd. I've reproduced Clark's graph below (but buy his book so he won't get mad).

You're looking at the curse of Malthus. Now that's some serious income stagnation.
* Clark's final thesis about how evolution powered the industrial revolution is controversial, but his basic read of the pre-industrial world is not.
This article available online at: Copyright © 2015 by The Atlantic Monthly Group. All Rights Reserved.

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