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Roula Khalaf, editor-in-chief of the FT, selects her favorite stories in this weekly newsletter.
The writer, editor of the FT, is director general of the Royal Society of Arts and former chief economist of the Bank of England.
A century ago, macroeconomists like me did not exist. Nor is macroeconomics itself as a discipline. It took the tumult of the stock market crash of 1929 and the Great Depression of the 1930s to initiate an intellectual and political revolution: national accounts (the statistical basis for measuring the economy), macroeconomic theory (the conceptual basis for understanding economy) and monetary and fiscal policy frameworks (to help the economy avoid future turmoil).
A century later, echoing the words of Milton Friedman in the 1960s, we are all now macroeconomists – armchair or not. Small movements in GDP and inflation dominate public discourse. Taxation and public spending shape political and public debate. Yet the greatest peril we face today is not a repeat of the Great Crash or the Great Depression (although neither is impossible). Rather, it is a widening of a “great divide” that has emerged within and between societies over the past half-century.
We see these divisions at the geopolitical level in the growing number of wars, real and commercial, and in an arms race in defense spending and tariffs. We see these divisions nationally, with fractured and polarized electorates engaged in divisive and polarizing elections this year. And we see these divisions at the local level too, in the growing discontent and insecurity felt within many communities – something the recent riots in the UK and Ireland have illustrated all too clearly.
At first glance, these divisions are difficult to explain. There has never been a time in history when cats, the cradles of human relationships, on a global and local scale, have been so intertwined. Flows of goods, services, information, finance and people are at or near historic highs. Yet our networks have rarely seemed so fragile. What explains this paradox?
Harvard political scientist Robert Putnam provided a compelling explanation at the turn of the millennium by Play alone. Putnam identified the loss of share capital — an erosion of social networks of trust and relationships, and the fraying of social fabricwithin and between communities – as guilty. He forensically documented the weakening of this social bond across the United States since World War II and how communities had become detached.
Putnam's recent documentary, Join or die?, shows that these patterns have worsened over this century – and not just over the last century. WE. The destruction of the social fabric has become an international norm. Research has shown how significant and sustainable the costs of bowling are. From lackluster growth to blocked social mobility, from the epidemic of loneliness to the collapse of communities, the erosion of social capital goes a long way to explaining some of our greatest ills.
At the national level, international evidence points to a strong causal link between social capital and growth, even once the other “capitals” that economists more often focus on (human, physical, and infrastructural) are taken into account. . And the effects are significant. A 10 percentage point increase in confidence increases an economy's relative economic performance by 1.3 to 1.5 percent of GDP. If the UK could reach Scandinavian confidence levels, it could add £100 billion a year to our growth.
One of the key mechanisms by which social capital stimulates growth is by unlocking opportunities. Recent research by Harvard economist Raj Chetty and colleagues suggests that social connectivity may be the most important determinant of social mobility. According to Chetty's estimates, providing a poor (usually disconnected) child with a rich (connected) child's network increases their lifetime earnings prospects by 20 percent. Few, if any, policy interventions in education or otherwise produce such high returns over the life course.
These effects are equally important and long-lasting for non-financial health measures. American studies carried out over a century tell us that the best indicator of a person's longevity and happiness is the quality of their relationships or their social capital. As U.S. Surgeon General Vivek Murthy observed, bowling alone is equivalent to smoking 15 cigarettes a day, shortening lifespans and eroding mental health and well-being.
What is true for individuals and nations is also true for communities. Among the poorest, security and solidarity are at the top of the hierarchy of residents' needs, like Maslow. Cohesion and social bonds are known to reduce crime and anti-social behavior and increase pride in belonging and belonging. This makes social capital an essential foundation for creating places for success. Without it, they atrophy or, even worse, they provoke riots.
There is another key dimension to the depletion of social capital: government effectiveness. Legitimacy and effectiveness of government require public trust. This is currently a shortage. This year's Nobel Prize winners in economics, Daron Acemoglu, James Robinson and Simon Johnson, have demonstrated that unreliable extractive institutions can often be so ineffective that nations fail.
Nearly a century ago, the Great Depression was the explosion that quickly heralded a revolution in economic policy. Today's Great Division is a slow drain that has silently undermined us for more than half a century. A malicious neglect of social capital has sowed the seeds of many of today's greatest economic, social, and spatial problems. Reversing the trend will require a giant leap in policy and practice as happened a century ago. My next column will discuss this new model of capitalism.
#Count #cost #bowling
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