Undercover Economist

Milton Friedman, meet Richard Feynman

If economics can tell us something useful about crime, marriage or car-pooling – as I believe it can – then other academic disciplines should have something to tell us about economies. Last month, Science published an example that may turn out to be important. Two physicists, Cesar Hidalgo and Albert-Laszlo Barabasi, and two economists, Bailey Klinger and Ricardo Hausmann, have been drawing unusual pictures of economic “space” that promise a deeper understanding of the biggest question in economics: why poor countries are poor.

There are many explanations, but some are easier to test than others. One very plausible account of why at least some poor countries are poor is that there is no smooth progression from where they are to where they would be when rich. For instance, to move from drilling oil to making silicon chips might require simultaneous investments in education, transport infrastructure, electricity and many other things. The gap may be too wide for private enterprise to bridge without some sort of co-ordinating effort from government – a “big push”. That is an old and intuitive idea in economics, but as an informal argument it leaves a lot to be desired. For a start, while plausible, it might not be true. If it is true, it might be far more so for some kinds of economy than for others. And if there is to be a big push, in which direction should it go?

Continued at ft.com, subscription free.