Preliminary Draft June 2008
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Reading Selections:
On The Internet: Alternatives and Supplements
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Hyperinflation and depression interest economists because they are extreme cases of common problems. In the United States, for example, the annual rates of unemployment ranged from 3.0% to 6.8% in the 1950s, from 3.5% to 6.7% in the 1960s, and from 4.8% to 8.3% in the 1970s. Similarly, the rate of inflation has sometimes been uncomfortably high. During the 1950s prices (as measured by the Consumer Price Index) rose by 23%, during the 1960s they increased by 31%, and during the 1970s they more than doubled, rising by 112%. Though these numbers are all small compared to what happened in the Great Inflation and the Great Depression, and also compared to what has happened in other countries in the past 50 years, they indicate the persistence of problems in economic performance of Western nations. Though news media emphasize macroeconomic problems, a strong case can be made that problems involving economic growth and development are far more important. Indeed, economics began when Adam Smith set out to explain how a nation becomes wealthy, or in today's terms, how it develops economically. There are several reasons the issues of development may not attract the attention they deserve both in economics courses and in the headlines. Most economists and reporters live in industrialized nations where development problems are no longer serious. Another reason may be that the analytical tools of economics have problems dealing with issues of development because individual creativity is a key ingredient in development. Someone must see opportunities and decide how to take advantage of them. Creativity is by its nature almost impossible to incorporate in theories. Theories try to explain regularities, but the essence of creativity is that it produces something new, an irregularity.
After you complete this unit, you should be able to:
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