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Economic Peril or Prosperity?
By Robert M. Whaples, Christopher J. Coyne, Michael C. Munger
The Independent InstituteCopyright © 2016 Independent Institute
All rights reserved.
The Economic Future
Robert M. Whaples
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." 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, and in the United States it is more than six times higher. These gains look modest in comparison to trends in many developing countries.
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 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, 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. 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 Years: Leading Economists Predict the Future, 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." Another of these leading economists predicts that by 2113 "we will have managed ... to completely eliminate [absolute] poverty in the world."
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) 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 controlled 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 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. 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 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." "After a century of life-changing innovations that spurred growth," predicts Gordon, "human progress is slowing to a crawl."
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 become better educated in science and technology, especially with the economic rise of Asia. The number of master's degrees in engineering and technology awarded in China has soared in the past two decades, surpassing the U.S. total in 2004, and — if trends continue — the figures for India will soon move it ahead of the U.S. total, too. Likewise, research and development spending in East Asia pulled even with levels in North America in 2011 and will inevitably dwarf the amount spent in North America, swelling the global total. Spurring this process, the payoff from innovation will undoubtedly grow as markets continue to globalize. History suggests that almost all the gains from technological progress ultimately go to consumers all around the world, not to producers.
Technological possibilities (probabilities?) are rife throughout the entire economy. Healthcare is the largest sector in the United States. Within the next half-century, breakthroughs in the understanding of biology and the application of computers promise to continue the extension of life, wipe out old diseases (including malaria, tuberculosis, AIDS, and perhaps even obesity), fight disease in new ways (such as computers in the blood stream), and build personalized replacement body tissues and organs. They may even begin the merger of human and machine and widespread usage of drugs and genetic engineering to enhance memory, intelligence, and physical abilities — not just for those who are disabled and sick but for everyone. (These ideas are potentially scary.) Breakthroughs in energy hold the promise of making fossil fuels obsolete. The inflation-adjusted cost of solar power has plunged, as has the cost of battery storage (which is vital for making solar energy competitive with natural gas), bringing down the overall cost of solar power about 75 percent since 2000. If current trends continue, optimists predict that by 2030 solar power will be cheaper than fossil fuel power from the grid even in not-so-sunny places. By 2065, a massive transition seems inevitable — unless, of course, breakthroughs in fossil fuels come even faster than in alternative fuels. Consider other natural resources. The mining of asteroids is on the near-term horizon. Rapid improvements in desalination technology could make freshwater scarcity a problem of the past. Even if agriculture merely continues to use current technologies to modify crops, their yields will continue to rise, and breakthroughs could make food even more plentiful. Manufacturing is ripe for major changes based on three-dimensional printers. And robotization will diffuse throughout manufacturing and into the rest of the economy.
Some of the most important new technologies will probably happen in transportation. In Back to the Future Part II, Marty McFly travels to 2015 and shows a couple of kids how to play a video game from the 1980s. Their dismissive reply is, "You mean you have to use your hands? That's like a baby's toy." In 2065, will anyone still use their hands to drive an automobile? Driverless cars are already on our roads, and their advent will likely lead to a huge economic reconfiguration. Because autonomous vehicles will be able to move safely at much higher speeds, cities will be redesigned. You won't need an Uber driver to shuttle you. A driverless car — which you may or may not own — will pick you up and drop you off, allowing you to travel while you're busy doing something else (e.g., working, playing, socializing, nursing a hangover, star gazing), tired, or even asleep. (Cars might become mobile hotel rooms.) This could mean suburban "sprawl" — an ugly name for a benign process — on steroids. The car could take the kids to Grandma's house and bring them back home again. Whatever goes for cars, goes for trucks, too. Similarly, drones might be everywhere (if we want them to be), changing delivery patterns.
The list goes on and on.
Will the rate of technological progress slow down? When I suggest this to college students, they tend to let out an audible snort or roll their eyes and emphatically dismiss the very idea — especially those who study science and technology.
Yet the authors in our symposium raise a number of important cautions concerning forces that might derail or at least decelerate technologically driven economic growth. At the top of the list is rising government debt due to spiraling entitlement spending. The issues they raise mirror the major concerns expressed by members of the AEA a decade ago. In that survey, I asked respondents to list the "three most important economic challenges facing the United States over the next sixty years." Their most important worries included problems caused by aging, Social Security, and pensions (listed by 50 percent of respondents); healthcare and insurance (34.3 percent); and education (24.3 percent). Another persistent concern among the authors who have contributed to our symposium is creeping government power and regulations that stifle economic initiative. Bruce Yandle warns of the choking stranglehold of this kudzulike growth of government regulation. Why so many laws and regulations? Perhaps Tacitus had it right in warning that "[c]orruptissima re publica plurimae leges" — the more numerous the laws, the more corrupt the government. The causation seems to run both ways.
It may strike some as odd that none of our authors raises the issue of global climate change. However, this result matches well with the earlier survey of general economists, in which only 17.1 percent listed environmental problems as a top worry, and only 4.2 percent explicitly mentioned climate change. In another survey, I asked economists, "In comparison to a world in which greenhouse gas levels were stable, rising levels of greenhouse gases by the end of the twenty-first century will cause GDP per capita in the U.S. to be [how much lower or higher]?" The most popular response was "less than 1 percent lower or higher." My sense is that most economists don't see global climate change as a looming problem mainly because they believe that the economy is fairly flexible and that the "ultimate resource," human ingenuity, will mitigate problems (if they ever arrive) with fairly inexpensive fixes, which may include geoengineering. There may also be skepticism that temperatures will rise as much as the Intergovernmental Panel on Climate Change predicts.
But there are some kinds of problems that science and technology cannot solve — and some they can make worse. Relentless economic growth may mean that the problems faced by most people around the world will increasingly be "First World problems." Among the complaints "Weird Al" Yankovic makes in his parody song "First World Problems" are that he has too many groceries for his gigantic refrigerator; he can't remember which car he has driven to the mall; his electric toothbrush won't recharge, so he has to brush his teeth "like a Neanderthal"; and his house is so big he can't get a WiFi connection in the kitchen. These are problems of excess — gluttony and selfishness — that technology can't fix.
Will our almost inevitable economic progress make most people truly better off? I have considerable doubts, which partially hinge on the fact that more isn't always better — especially when you already have enough. For example, despite considerable economic growth, subjective well-being among Americans has not risen during the past four decades and has apparently declined somewhat for women. The argument can be made that this plateauing has been caused by worsening noneconomic factors (such as the impact of divorce) that have cancelled out the potentially benign impact of rising levels of real income. However, it may be that income above a certain level has no power to increase genuine well-being (for example, Arthur Brooks sees no real gains past an income of $75,000 per year).
With this in mind, let me add two deep concerns I have about our economic future. The first problem is that the erosion of marriage and the family may increasingly harm us. Shelly Lundberg and Robert A. Pollak document this trend, showing the share of thirty- to forty-four-year-old men currently married dropping from 85 percent in 1950 to 60 percent in 2010 and the drop for was women nearly as large. The decline in the proportion of the population that is married has been especially strong for those with less education. Simultaneously, births to nonmarried couples as a proportion of all births rose from 5 percent in 1959 to 53 percent in 2011. Lundberg and Pollak argue that broad economic changes — especially increased employment opportunities for women — are largely responsible for this pattern as the gains from specialization by couples have disappeared. They argue that marriage has declined less among well-educated couples because it serves as a commitment mechanism that supports high levels of investment in children and is hence more valuable for couples adopting a high-investment strategy for their children. Unless the goal is to raise high-achieving children, then, more and more women feel that they don't need a husband, and more and more men feel that they don't need a wife. In 2014, the U.S. census estimated that 27 percent of all children lived in a fatherless home, and another census study estimates that in 2009 just 59 percent of all American children lived with their married and biological parents.
Although women might not need husbands as much, their children — especially their male children — do seem to benefit greatly from having their fathers around. Joel Schwartz documents that marriage substantially reduces childhood poverty rates and infant mortality rates and that, holding other factors constant, boys raised in single-parent homes are about twice as likely to have committed a crime that leads to incarceration by the time they reach their early thirties. The impact appears to carry over to the labor market. W. Bradford Wilcox and Robert I. Lerman estimate that almost 40 percent of the decline in male employment since 1979 arose because of the drop in the number of intact families.
Excerpted from Future by Robert M. Whaples, Christopher J. Coyne, Michael C. Munger. Copyright © 2016 Independent Institute. Excerpted by permission of The Independent Institute.
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Table of Contents
Contents1 The Economic Future: An Introduction Robert M. Whaples,
2 From Lemonade Stands to 2065 Pierre Lemieux,
3 Pessimistically Optimistic about the Future Peter J. Boettke,
4 The Economy in 2065: Predictions and Cautions David R. Henderson,
5 If We Keep Our Ethical Wits, We Can See Over into a Great Enrichment Art Carden and Deirdre N. McCloskey,
6 The Coming of Peak Gross Domestic Product? Brink Lindsey,
7 Why Software Really Will Eat the World — and Whether We Should Worry Russell D. Roberts,
8 The U.S. Economy: The New Normal and an Unsustainable Future Benjamin Powell and Taylor Leland Smith,
9 Life Is a Battlefield Janet A. Schwartz and Dan Ariely,
10 The Uber-All Economy of the Future J. Walker Smith,
11 Tomorrow 3.0: The Sharing Economy Michael C. Munger,
12 Bitcoin and the Future of Digital Payments William J. Luther,
13 The Connected Home and an Electricity-Market Platform for the Twenty-First Century L. Lynne Kiesling,
14 If Government Were Angels, Only Humans Would Be Necessary: A Look at the Economic Prospects of 2065 Brian F. Domitrovic,
15 The Future of the Economy: Self-Fulfilling Prophecies P. J. O'Rourke,
16 Through the Mist: American Liberty and Political Economy, 2065 Charlotte A. Twight,
17 Conclusion and Final Thoughts Michael C. Munger,
About the Editors and Contributors,