2,000 Years of Economic History in One Chart … and Another

Michael Cembalest, head of investment strategy at JP Morgan, is famous for his beautiful, insightful charts. His latest (courtesy of Paul Kedrosky) illustrates two millennia of world economic history:

According to the chart, India (orange) and China (red) together comprised more than two-thirds of the globe’s economic activity back in year 1 (well, not so much the globe, but the chosen countries). By 1950, their share had fallen to only one-eighth, thanks to the growth of the United States (green), Western Europe (shades of blue), Russia (gray), and Japan (yellow). Since then, China has been gaining share.

Not surprisingly, the chart has already attracted attention in the blogosphere. Over at the Atlantic, Derek Thompson slices and dices the data to see how much of the pattern reflects  the ebbs and flows of population vs. productivity.

At the Economist, meanwhile, K.N.C. channels Edward Tufte, expressing appropriate alarm about the compressed x-axis. The first millennium gets as much real estate as the 1990s. K.N.C. then offers another approach:

Given data limitations, this chart also compresses the x-axis, but using bars and variable-width gaps make it much clearer that there are jumps between years. The focus on a limited number of countries also makes it clear that the chart omits countries that account for 30-40% of world GDP. In Cembalest’s chart, in contrast, one wonders what happened to South America, the Nordic countries, Canada, Africa ex Egypt, etc. His listed countries appear to sum to 100% of world GDP, but large swathes of the world are unaccounted for.

3 thoughts on “2,000 Years of Economic History in One Chart … and Another”

  1. I don’t know what we’re supposed to learn from this chart, but as others have already stated with passion, it’s pretty bad information design. And even without that criticism, almost every conclusion that one would draw from it certainly appears to be simply meaningless or false – at least without some sort of prevarication.

    It reminds me of the biggest statistical sin in current economics: using ‘families’ rather than individuals. If someone uses that measure, then everything that follows is false. Families have changed too much. More so than the economy itself. The economy is noise by comparison. Likewise, for such gross categorization as this chart seeks to make use of, economic activity is meaningless without the sizes of the geography and the population. Boundaries are meaningless unless what happens within them is substantially different per person per square mile/km. Perhaps even, limited to per person per acre of arable land.

    Otherwise all the chart tells you is that big arbitrary geographic areas produce more income than small arbitrary geographic areas. Which tells us precisely nothing that isn’t absurdly obvious.

    I mean, seriously. The chart is useless.

    What any such chart would allow us to draw the conclusion that:
    i) navigable rivers or seas made a very big difference, and
    ii) a hostile winter environment is beneficially eugenic for an agrarian population, but not for non-agrarians,
    iii) as of the industrial revolution, rivers are slightly less important, and populations with property rights and literacy matter increasingly instead.

    Economic history is not complicated. People need:
    a) an environment that is not overly hostile (such as subsaharan africa or siberia),
    b) a means of transportation of goods (rivers),

    They need institutional technologies which do not so much require the state as require the state not abuse:
    c) a monopoly of control over that territory within which they feel able to allocate property, take risks, establish norms, and where necessary laws and from which they can prohibit others from establishing different allocations of property, different norms and laws.
    d) property rights (law, contracts, courts), and
    e) tools that allow them to calculate the future and to cooperate in increasing numbers (numbers, money, accounting, banking, credit).

    And, they need those institutions that *are* complicated: social aspects we too often ignore, and which appear to require intervention on the part of the state:
    f) the change in mating patterns (outlawing inbreeding) and property rights that allow us to transform human relations from that of tribal familialism to that of commercial universalism; thereby allowing us to trust, risk, produce and trade in increasing complexity. And
    g) the consequential prohibition on rent seeking and corruption that plagues humanity everywhere in the world except among the germanic protestants above the Hanjal line. And
    h) the need for aristotelian reasoning (objective reasoning, debate, and science) as a compliment and competitor to the emotionally and socially binding mysticism that seems to be a required property of all social orders.

    A chart that is useful, will be the chart that illustrates that the only value of a state is in creating these institutions (a) thru (h).

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