Wired Magazine and Charles Dickens

We think of the leading tech periodical Wired and we think of the internet and smartphone phase of technology innovation.

As always, there’s a wide-angle deeper view that helps you to avoid being “stranded in the present” (to use Professor Peter Fritzsche’s useful phrase and book title as a warning about the flaws of a no-overview sense of reality).

Think back to the famous Charles Dickens classic novel, Hard Times from 1854.

Chapter 11 of this novel talks about “electric wires.” Thus today’s copper wires and fiberoptics have a nineteenth century anticipation.

The end-notes on Hard Times inform us:

“…the wires of the telegraph which were becoming common as an adjunct to the railways from 1846-1847. During the French Wars the old wire-and-lever telegraphs had been set up between Whitehall and the main naval bases. The ‘galvanic’ telegraph had been invented by 1840, the idea of stretching the wires between tall posts by 1843, and by mid-1848 half the railways were so equipped.”

(Charles Dickens, Hard Times, Penguin Books, 1969, page 328)

The following added point will further elaborate on this chapter of the world’s wiring adding a larger comparative perspective:

The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century’s On-Line Pioneers is a book by Tom Standage. First published in September 1998 through Walker & Company, the book discusses the development and uses of the electric telegraph during the second half of the 19th century and some of the similarities the telegraph shared with the Internet of the late 20th century.

The book’s central idea posits that of these two technologies, it was the telegraph that was the more significant, since the ability to communicate globally at all in real-time was a qualitative shift, while the change brought on by the modern Internet was merely a quantitative shift according to Standage, though, by the same token, global communication was just a quantitative shift from long-distance communication.

The book describes to general readers how some of the uses of telegraph in commercial, military, and social communication were, in a sense, analogous to modern uses for the Internet. A few rather unusual stories are related, about couples who fell in love and even married over the wires, criminals who were caught through the telegraph, etc. The culture which developed between telegraph operators also had some rather unexpected affinities with the Internet. Both cultures made or make use of complex text coding and abbreviated language slang, both required network security experts, and both attracted criminals who used the networks to commit fraud, hack private communications, and send unwanted messages.

Essay 104: Economics—A Decade after the Global Recession: Lessons and Challenges for Emerging and Developing Economies

from M. Ayhan Kose, Director, Prospects Group, World Bank Group:

Dear Colleagues.

This year marks the tenth anniversary of the 2009 global recession. Most emerging market and developing economies (EMDEs) weathered the global recession relatively well, in part by using the sizeable fiscal and monetary policy buffers accumulated during the prior years of strong growth. However, a short-lived rebound in activity has been followed by a decade of protracted weakness in EMDEs amid bouts of financial market stress, falling commodity prices, and subdued trade and investment.

Are EMDEs ready to face a deeper global downturn, if it materializes? Our new study A Decade After the Global Recession: Lessons and Challenges for Emerging and Developing Economies [PDF] takes on this question. It examines developments of the past decade, draws lessons for these economies, and discusses policy options. The study is the first comprehensive analysis on the topic with a truly EMDE focus. It offers three main conclusions. First, perhaps for the first time, many EMDEs were able to implement large-scale countercyclical fiscal and monetary policy stimulus during the last global recession. Second, looking ahead, policymakers in many EMDEs are now equipped with stronger policy frameworks than in earlier global downturns or financial crises. Third, EMDEs have now less policy room to face a global downturn than they had before the 2009 global recession. Irrespective of the timing of the next global downturn, the big lesson of the past decade for EMDEs is clear: since they are less well prepared today than prior to the 2009 episode, they urgently need to undertake cyclical and structural policy measures to be able to effectively confront the next downturn when it happens.

You can download the book here [PDF]. Its table of contents is below (each chapter individually downloadable). All charts featured in the book (with underlying data series) are also available below.

A Decade After the Global Recession: Lessons and Challenges for Emerging and Developing Economies [PDF]

Edited by M. Ayhan Kose and Franziska Ohnsorge

Part I: Context

Chapter 1: A Decade After the Global Recession: Lessons and Challenges [PDF]
Chapter 2: What Happens During Global Recessions? [PDF]

Part II: In the Rearview Mirror

Chapter 3: Macroeconomic Developments [PDF]
Chapter 4: Financial Market Developments [PDF]
Chapter 5: Macroeconomic and Financial Sector Policies [PDF]

Part III: Looking Ahead

Chapter 6: Prospects, Risks, and Vulnerabilities [PDF]
Chapter 7: Policy Challenges [PDF]

Part IV: Implications for the World Bank Group

Chapter 8: The Role of the World Bank Group [PDF]

Excel Charts

Complete archive [ZIP]

Chapter 1 [XLSX]
Chapter 2 [XLSX]
Chapter 3 [XLSX]
Chapter 4 [XLSX]
Chapter 5 [XLSX]
Chapter 6 [XLSX] Box [XLSX]
Chapter 7 [XLSX]
Chapter 8 [XLSX]

PS: This study follows on the World Bank Group’s recent book on Inflation in Emerging and Developing Economies. For their main periodical products, please visit: Global Economic Prospects and Commodity Markets Outlook. For their full menu of monitoring publications, please visit: World Bank Economic Monitoring. For their analytical work on topical policy issues, please visit Prospects Group Policy Research Working Papers.

Essay 95: Education and “Then and Now” Thinking

Ben Shalom Bernanke was Chairman of the Board of Governors of the Federal Reserve System from February 1, 2006, to January 31, 2014.

In many interviews in financial and economic periodicals, he blurts out the fact that his guide in the years surrounding the Great Recession of 2008, in his decisions by the advice of Walter Bagehot of the Economist of London whose main book is called Lombard Street [Project Gutenberg ebook] from 1873:

Lombard Street is known for its analysis of the Bank of England’s response to the Overend-Gurney crisis. Bagehot’s advice (sometimes referred to as “Bagehot’s dictum”) for the lender of last resort during a credit crunch may be summarized by  as follows:

  • Lend freely.
  • At a high rate of interest.
  • On good banking securities.

(Nonetheless, other economists emphasize that many of these ideas were spelled out earlier by Henry Thornton’s book The Paper Credit of Great Britain [archived PDF].)

Bagehot’s dictum has been summarized by as follows: “To avert panic, central banks should lend early and freely (i.e., without limit), to solvent firms, against good collateral, and at ‘high rates’.”

In Bagehot’s own words (Lombard Street [Project Gutenberg ebook], Chapter 7, paragraphs 57–58), lending by the central bank in order to stop a banking panic should follow two rules:

First. That these loans should only be made at a very high rate of interest. This will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it. The rate should be raised early in the panic, so that the fine may be paid early; that no one may borrow out of idle precaution without paying well for it; that the Banking reserve may be protected as far as possible.

Secondly. That at this rate these advances should be made on all good banking securities, and as largely as the public ask for them. The reason is plain. The object is to stay alarm, and nothing therefore should be done to cause alarm. But the way to cause alarm is to refuse some one who has good security to offer… No advances indeed need be made by which the Bank will ultimately lose. The amount of bad business in commercial countries is an infinitesimally small fraction of the whole business… The great majority, the majority to be protected, are the ‘sound’ people, the people who have good security to offer. If it is known that the Bank of England is freely advancing on what in ordinary times is reckoned a good security—on what is then commonly pledged and easily convertible—the alarm of the solvent merchants and bankers will be stayed. But if securities, really good and usually convertible, are refused by the Bank, the alarm will not abate, the other loans made will fail in obtaining their end, and the panic will become worse and worse.

We have to ask ourselves: how is it possible that advice from 1873 (i.e., Bagehot’s Lombard Street [Project Gutenberg ebook] crisis-management for that time) can be applicable in 2008?

Does this confirm the off-handed comment in This Time is Different by Ken Rogoff of Harvard that there must be true-but-opaque deep rhythms in history including financial history? Otherwise advice would be useless due to the passage of time and useful patterns would not be discernible.

In fact, Lawrence Summers at Treasury “deluged” Mexico and Latin America with loans to avert an earlier banking crisis following Bagehot’s advice. The logic is that investors must sense that Mexico, etc. will be bailed out at all costs. The idea is to avert a “downward spiral of confidence” by means of visible massive interventions.

Education should always ponder these “then and now” puzzles as part of a beneficial “argument without end.”