Pursued Economy

CHAPTER 1Introduction to the Other Half of Macroeconomics

Human progress is said to have started when civilizations sprang up in China, Egypt, and Mesopotamia over 5,000 years ago. The Renaissance, which began in Europe in the 13th century, accelerated the search for both a deeper understanding of the physical world and better forms of government. But for centuries, that progress benefited only the fortunate few with enough to eat and the leisure to ponder worldly affairs. Life for the masses was little better in the 18th century than it was in the 13th century when the Renaissance began. Thomas Piketty noted in his book Capital in the Twenty-First Century that economic growth was basically at a standstill during this period, averaging only 0.1 percent per year.¹

Today, on the other hand, economic growth is largely taken for granted, and most economists only talk about “getting back to trend.” People actually become upset when they do not see enough economic growth. Economists arguing that growth will return to the high rates of the past if only inflation reaches the 2-percent target are typical of this group. But what they do not ask is how the growth trend was established in the first place. To understand how centuries of economic stagnation gave way to a period of rapid economic growth that was then followed by where we are today, with decelerating economic growth and rising social tensions, we need to review certain basic facts about the economy and how it operates.