From lemonade stands to 2065.

AuthorLemieux, Pierre

One problem with predicting the future is that it is full of surprises, which by definition are impossible to predict. Another problem is that the forecaster, to the extent that he feels capable of influencing events, is tempted by wishful thinking: to predict what he wishes to happen. Ecologists of the 1960s and 1970s were especially adept at that, predicting mass starvation within a few decades (Sabin 2013).

In this short essay, I focus mainly on the United States, although my tea leaves also reveal something about the rest of the world. I try in turn (1) to build a simple forecast of the standard of living, (2) to explore a neglected megatrend, (3) to look at surprises that might further affect the world before 2065, and (4) to reorganize all these factors around two possible polar worlds. In the process, to separate the normative from the positive, I propose a criterion for distinguishing between good (or better) and bad (or worse) scenarios.

Simple Predictions about Gross Domestic Product

Surprisingly, simple predictions of the standard of living often seem to get it right. In 1930, John Maynard Keynes ([1930] 1963) predicted that the standard of living would multiply by between four and eight times over the following one hundred years. If we measure the standard of living with real gross domestic product (GDP) per capita (which is the most general measure of average income), Keynes was quite on the mark: from 1930 to 2014, the actual increase of real GDP per capita was more than sixfold, and there are still sixteen of his one hundred years to go. This growth occurred despite a world war and the recent Great Recession--showing how resilient a more or less free economy is. Similarly, the predictions of the late futurists Herman Kahn and Anthony Wiener were pretty close to the mark. In 1967, they provided forecasts for real GDP per capita in the year 2000. The actual figure turned out to be close to the midpoint between their most optimistic and most pessimistic predictions, which ranged between a twofold and a fourfold increase.

Figure 1 attempts a similar simple forecasting exercise for the U.S. economy fifty years from now. My high-baseline scenario would have real GDP per capita grow at 2.8 percent per year, which corresponds to the growth rate between 1930 and 1973. My low-baseline scenario would see an annual growth of 1.7 percent, the growth rate experienced since 1973. The lower growth can be thought of as representing what some analysts describe as the new "Great Stagnation." My low-baseline scenario is close to the forecast made by the U.S. Congressional Budget Office (CBO), which envisions a growth rate of 1.6 percent over the next seventy-five years (2014). This suggests that my low-baseline scenario may be a bit optimistic.

Because of compounding, the end result of either of my two scenarios translates into significant increases in the standard of living: by 2065, real GDP per capita would have been multiplied by a factor of between 2.3 and 4.1, depending on which scenario obtains. To grasp what this means, imagine your real income either doubling or quadrupling.

My two baseline scenarios can be interpreted as reflecting two different paths of regulation. A good argument can be made that economic growth is positively affected by economic freedom (and attendant institutions) and negatively impacted by the opposite of economic freedom, regulation (see Lemieux 2014). Between 1949 and 2005, the Code of Federal Regulations was multiplied sixfold to more than 134,000 pages (Lemieux 2014-15). Charles Murray counted 175,000 pages for 2012 (2015). These pages do not include state and local regulations. One can argue that the rapid growth of regulation after World War II has played a major role in the slowdown of economic growth (Lemieux 2014-15 and references cited therein). My low-baseline scenario can be thought of as incorporating the impact of the regulation explosion, my high-baseline scenario as the growth potential if the postwar regulatory explosion were dowsed. In other words, my high-growth scenario assumes a decrease of regulation, whereas my low-growth scenario assumes some leveling off in the regulatory trend.

Although comparable data are missing, it is certainly true that the regulation explosion started not with the end of World War II but with the New Deal and that it was smoldering for a few decades before that. Only the resilience of markets in an entrepreneurial economy can probably explain the relatively high growth rates that persisted until a few...

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