Australia’s political class has started arguing about the best way to restart the economy.
It sounds like they’re arguing about something obvious, like how to get people working again and businesses reopened over the next few years.
But listen closer.
They’re fighting about something deeper — what path should the economy take out of the crisis?
It’s a crucial question, because its answer will influence the nature of economic activity over the next few decades, along with Australia’s culture and its standing in the world.
Why? Because of something called ‘path dependence’
Economists developed the theory of path dependence to explain why industries, and economies, follow certain growth paths once they’re established, and why it can be very difficult to shift to another growth path.
An extreme example would be the slave-based economy of the antebellum southern United States.
The institution of slavery, which existed for hundreds of years in the US, had become so profitable for southern planters that the Mississippi River valley had, at one stage, more millionaires per person (among its white po