Richard Pomfret

 

On his book The Age of Equality: The Twentieth Century in Economic Perspective

Cover Interview of January 05, 2012

The wide angle

The Age of Equality is aimed as a counterweight to the short-term perspective of media discussion of economic affairs.

I am constantly struck by the gap between what we teach students in terms of the forces of demand and supply driving market economies and what the students read in the press.

On a personal level, this was brought home by oil shocks.  Around 1980 reports were of permanent energy shortages and $100 oil, just as energy-saving measures and exploitation of new oilfields were about to drive oil prices down to $10 by 1986.  The same short-termism occurred in reverse in the late 1990s when The Economist newspaper extrapolated current low oil prices to predict an era of $5 oil in the first decade of the twenty-first century.

As a policy advisor I have experienced a similar challenge, especially when seconded to the United Nations for a year (in 1993) advising governments of the former Soviet Union.  After abandoning central planning, they faced monthly inflation rates of over 50%.  Their inclination was often to blame monopolists for raising prices, if not to blame capitalism itself.  They could have learned from the experience of Germany in 1923, or from other hyperinflations, that they faced a monetary policy challenge rather than having to deal with identifiable evil monopolists.

Today we are concerned about financial crises and their consequences, but it is important to understand the crucial role that the financial sector plays in a market economy—illustrated by the part that the lack of a financial sector played in the dismal long-term economic performance of Fascism or Communism.

We worry about rising inequality in the United States and other high-income countries, but the fact that people are concerned and see economic equity as a public policy issue in a market economy is a positive (and not inevitable) thing.

The economic rise of China, India, Brazil and other emerging market economies since the final decades of the twentieth century poses challenges to the status quo, but it is a good thing that the great divergence of the previous two centuries, when the gap between rich and poor countries widened continuously, is now being reduced.