The economic future: an introduction.

Author:Whaples, Robert M.
Position:Report
 
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Prediction has a venerable tradition among economists. In "Economic Possibilities for Our Grandchildren," John Maynard Keynes--even as the Great Depression was unfolding--famously threw aside the contemporary "attack of economic pessimism" and predicted that a century later the "standard of life" in economically progressive countries would be "between four and eight times as high as it is to-day" ([1930] 1933, 364). History has generally vindicated this optimism. Not that real gross domestic product (GDP) per capita is the only or the best measure of the standard of life, but by this useful metric income per person in the United Kingdom is now more than five times higher than when Keynes wrote his essay (Williamson n.d.), and in the United States it is more than six times higher (Johnston and Williamson 2015). These gains look modest in comparison to trends in many developing countries. (1)

Keynes's task was especially challenging. A century is a very long time. Prompted by the birth of my first grandchild last year, I have begun to wonder what life might be like when she reaches my age--roughly fifty years from now. Accordingly, my coeditors, Michael Munger and Christopher Coyne, and I have recruited for this issue of The Independent Review an intriguing panel of economists (not all with degrees in economics) to help clarify the picture. They all admit that this task is daunting, but they are too modest. Even the skeptical reader will find a profusion of insights in the articles that follow.

As a whole--like Keynes and other economists who have answered this question--our panelists are generally optimistic, although the optimism is carefully guarded in some cases. This optimism accords with the broader opinion held by economists surveyed about a decade ago (Whaples 2006a), although the intervening ten years of disappointing economic performance appears to have tempered it a bit. That survey asked randomly selected members of the American Economic Association (AEA) to predict the growth in per capita income in the United States over the next sixty years; the median response was that growth would be "positive but slightly less than the rate over the past sixty years," which was fairly robust. (2) Such a growth rate would imply an increase in average incomes of about 150 percent in the next fifty years. There is similar optimism among most of the authors in the collected volume In 100 Tears: Leading Economists Predict the Future (Palacios-Huerta 2013), whose first chapter identifies one obvious historical trend as "unrelenting growth" and concludes that, "absent a major move away from inclusive institutions at the world level, our grandchildren should also be writing about how unrelenting growth has been in their past century" (Acemoglu 2013, 4, 27). Another of these leading economists predicts that by 2113 "we will have managed ... to completely eliminate [absolute] poverty in the world" (Mas-Colell 2013, 87).

The reasons for economic optimism are abundant but can be boiled down to the fact that economists expect technology will continue to improve provided that reasonable economic incentives to encourage this discovery and to implement its fruits persist. The predicted changes range from innocent innovations that will make life a bit more comfortable (such as the pillow that learns your sleep rhythms partnered with the coffee maker that knows when you have awakened--see Lynne Kiesling's essay in this issue) to potentially chilling technologies that might strip our human dignity (including the almost complete elimination of privacy and electronic supplementation of the brain embedded in a government-control educational system--see Charlotte Twight's essay).

I won't spoil the surprises you'll find in these thoughtful and immensely readable essays, but because none of our authors has room to explore the broad technological horizon in much detail, I consider here the historical trends in total factor productivity and then survey some of the technologies that might revolutionize the economy in the coming half-century. Economic historian Alexander Field (2011) estimates that the growth of total factor productivity--the ability to turn inputs into output--for the private domestic economy was fairly rapid in the late 1800s, declined somewhat in the years before and during World War I, reached its peak in the period from 1919 to 1973 (with a noticeable hiatus during World War II), and slowed dramatically in the final decades of the twentieth century, before picking up again after that (see especially table 6.1 in Field's book). He argues that the first surge of productivity growth was tied to the implementation of steam-engine technology in factories and transportation; the second wave was driven by electrification and the internal combustion engine; and--after a pause--the third wave has been due to computers and related technologies.

Unfortunately, the most recent total factor productivity growth rate pales in comparison to that of the earlier golden age. This discrepancy has led economists such as Tyler Cowen (2013) to argue that we have already picked the "low-hanging fruit"--we have made the easy discoveries--making future discoveries much harder to obtain, so "average is over." Sharing this "pessimism"--although this is not quite the right word because the argument is that growth will slow but not completely stop or reverse any time soon--is Robert Gordon, who attacks "the assumption, nearly universal since [Robert] Solow's seminal contributions of the 1950s, that economic growth is a continuous process that will persist forever.... Rather, the rapid progress made over the past 250 years could well turn out to be a unique episode in human history" (2012, 2). "After a century of life-changing innovations that spurred growth," predicts Gordon, "human progress is slowing to a crawl" (interviewed in Aeppel 2014). (3)

In contrast, the majority view among economists sees far more potential in the next wave (or waves) of technology. One source of this optimism is that rising population will boost the number of scientists, engineers, and entrepreneurs around the world who work to push out the technological frontier. More people equals more brains, and those brains will continue to...

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