The Next 100 Years

Daron Acemoglu has an interesting working paper entitled “The World our Grandchildren Will Inherit: The Rights Revolution and Beyond”. In it he surveys the 10 most important economic and social trends of the past century and asks what the future holds for these trends. The 10 trends are:

1. The rights revolution – the increase in civil and political rights of citizens. According to Acemoglu, this is the most fundamental right as it underpins the other trends.

2. The sweep of technology

3. Unrelenting economic growth

4. Uneven economic growth

5. The transformation of work and wages

6. The health revolution

7. Technology without borders

8. War and peace

9. Counter-Enlightenment in politics

10. Population explosion, resources and the environment

At the centre of Acemoglu’s paper is the idea that technological change is at the root of economic growth, and that technological change is shaped by political institutions. Societies which are pluralistic and have a broad-based distribution of political power, and where the government has a monopoly of coercive power have higher economic growth and are more prosperous. For this reason, Acemoglu is not optimistic about China’s future prosperity unless they move towards a more inclusive and broad-based polity.

Acemoglu’s paper can be criticised on at least three counts. First, he has a very Whiggish view of history. Second, there is the danger that the distribution of political power becomes too wide and ultimately begins to undermine democracy. Third, the rights revolution has created a huge rent-seeking culture and industry. The question ultimately is whether this industry is a parasite or a parasitoid.

There is also a review of Acemoglu's paper over at the NEP-HIS Blog.

The Economics of Global Warming

The Berkeley Earth Project , an independent study of global warming, has found that the earth has become a degree warmer over the past half century. However, the statistical uncertainty surrounding pre-1920 estimates makes it very hard to say much about long-term trends - click here for graph . This is one of my concerns with the global warming debate - we simply don't have trustworthy long-run data which looks at temperature changes over the last millennium (or two). My second concern with the global warming debate is that it is very hard to prove any sort of casual link between global warming and human activity. The scientists may be able to show correlation between global warming and our production of carbon dioxides etc., but correlation is not causation. My third concern with the debate is that those who are sceptical or agnostic are stereotyped as flat-earthers or intellectually-challenged crackpots. This only stifles debate and the progress of science itself.

Boom and Bust: A Global History of Financial Bubbles

Boom and Bust: A Global History of Financial Bubbles, co-authored with my colleague Will Quinn , is forthcoming in August. It is published by Cambridge University Press and is available for pre-order at Amazon , Barnes and Noble , Waterstones and Cambridge University Press .

The Failure of Herstatt Bank

As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of

Finance: Past, Present and Future

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