Karl Marx (left) and Friedrich Engels. Mccluskey accuses Marx of economic pessimism on Malthusian grounds

Relax, economic pessimists: the sky will not fall

Real average income per person in the world is rising faster than ever before
February 18, 2016
Read the pieces by Robert Gordon and Lawrence Summers, published in last month's Prospect, to which Deirdre McCloskey is replying:

The end of economic growth

Will our children really not know economic growth? 

For reasons I don’t understand, people simply love to be told that the sky is falling. Yet it seldom does. For example, a gaggle of conservative and liberal economists, such as Lawrence Summers, Erik Brynjolfsson, Andrew McAfee, Edmund Phelps, Jeffrey Sachs, Laurence Kotlikoff and Tyler Cowen, have argued recently that Europe and the United States are facing a slowdown of new ideas and a skill shortage. Technological unemployment, uncompetitveness and slow economic growth, it is said, will be the result. The idea is expanded on by my old friend Robert Gordon in the pages of his new book, The Rise and Fall of American Growth.

Maybe. In the past couple of centuries numerous other learned economists have predicted similar slowdowns. The Keynesian economists in the late 1930s and the 1940s were confident in their prediction, along Gordon’s lines, of world “stagnationism.” The prediction was instantly falsified by the continuing Great Enrichment, which since 1800 has raised real incomes in countries like Britain and Italy and Japan by 3,000 per cent. Three-thousand per cent. In the first three-quarters of the 19th century the classical economists, Karl Marx included, expected landlords, or in Marx’s case capitalists, to engorge the national product. On Malthusian grounds, they expected workers to stay at the same subsistence wage level—£2 a day in 2016 prices—typical of human life since the caves. It didn’t happen that way.

In Britain, real, inflation-corrected income per head per day is now 30 times higher than it was then. Contrary to recent alarms, even in the rich countries, real income for the poor continues to grow. Thirty years ago, hip-joint replacement was experimental. Now it’s routine. Tyres and motors were unreliable. Now they almost never wear out. Once nothing could be done about clinical depression. Now something can. Further, in terms of real comforts—a roof, heating, ample clothing, decent food, adequate education, effective medicine, long life—the income is more and more equally spread. Pace Piketty.

The Italian economists Patrizio Pagano and Massimo Sbracia argue that those who predicted previous stagnations—proposed after every major recession, they note—failed not so much in the impossible task of anticipating wholly new technology as in not grasping the further rewards of existing technology. Joel Mokyr, a student of the history of technology, recently offered some persuasive assurances on the matter of slowdown, directed specifically at the sky-is-falling convictions of his colleague at Northwestern University, the gloomy Gordon. Mokyr argues that the sciences behind biology, computers and the study of materials now promise gigantic enrichment.

As Thomas Babington Macaulay, the 19th-century historian and politician, asked in 1830: “On what principle is it that, when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?” He continued: “If we were to prophesy that in the year 1930 a population of fifty million, better fed, clad, and lodged than the English of our time, will cover these islands, that Sussex and Huntingdonshire will be wealthier than the wealthiest parts of the West Riding of Yorkshire now are, that machines constructed on principles yet undiscovered will be in every house, many people would think us insane.”

Whiggish and bourgeois and progress-minded though Macaulay was, he was in his prediction exactly right, even as to the British population in 1930. If one includes the recently separated Republic of Ireland, he was off by less than 2 per cent. And even the pessimistic, anti-Whiggish economists such as Gordon would not deny that we have before us 50 or 100 years in which middling and poor countries such as South Africa, Brazil, Haiti and Bangladesh will catch up to what is already, in the rich countries, a stunningly successful level of average real income. The Nobel laureate Edmund Phelps, among the pessimists, believes that many rich countries lack dynamism. Similarly, Gordon argues that “headwinds are slowing the vessel of progress.” It hasn’t happened yet, but let’s suppose the sky does fall on Europe and the US. China and India, who between them account for about four in ten of the global population, have become radically more free-market since 1980, and are quickly catching up. They are growing at around 7 to 12 per cent per person per year. Despite recent slowdowns in China—though not in India—they will continue liberalising and growing.

To appreciate what will happen over the next 50 or 100 years if such growth continues, as there is every reason to think it will, learn the “Rule of 72.” The rule is that something, such as income, growing at 1 per cent per year takes 72 years to double. (Rest assured, the fact is not obvious without calculation. It just happens to be true. You can confirm it by taking out your calculator and multiplying 1.01 by itself 72 times.) It follows that if the something grows twice as fast, at 2 per cent instead of 1 per cent, the something will double in half the time, or 36 years. A runner going twice as fast will arrive at the mile marker in half the time. Similarly, something growing at 3 per cent a year will double in a third of the time, or 24 years.

Then apply your newly-won arithmetical brilliance to our economic prospects. Even at the modest 4 per cent per year per person that the World Bank predict China will experience to 2030, the result will be a populace almost twice as rich. Dwight Perkins and Thomas Rawski, specialists on China’s economy, are predicting 6 to 8 per cent annual growth to 2025, by which time the average Chinese person would have the standard of living enjoyed in 1960s America. China and India, during their socialist experiments of the 1950s to the 1970s, were so badly managed that there was a great deal of ground to be made up merely by letting people open shops and factories where and when they wanted to, rather than by approval from the authorities. As Perkins pointed out in 1995: “When China stopped suppressing such activity… shops, restaurants and many other service units popped up everywhere… [because the] Chinese… had not forgotten how to trade or run a small business.” Or, indeed, a large business. No genetic argument can be put forward that implies that Chinese or Indians or Africans or Latin Americans should do worse than Europeans permanently.

We have seen recently, right through the recession, a sustained real growth rate worldwide of about 4 per cent per year per person, the highest in history. It will result in a doubling of the material welfare of the world’s average person within a short generation (72 ÷ 4 = 18 years), with economies of scale in world invention kicking up the rate. In two such generations, just 36 years, that would mean a quadrupling, which would raise the average real income in the world to the levels attained in 2012 in the US, which for well over a century has sustained the world’s highest per-person income of any country larger than Norway. Pretty good. And it will be pretty good for solving many if not all of the problems in the soul and in the society and in the environment.

Consider this remarkable likelihood. Sub-Saharan Africa has great genetic diversity, at any rate by the standard of the narrow genetic endowment of the ancestors of the rest of us, who comprise the small part of the race of Homo sapiens that left Mother Africa in dribs and drabs after 70,000 BC. The lower diversity outside Africa comes from what geneticists call the founder effect, that is, the dying out of genetic lines in an isolated small group, such as the humans who ventured into west Asia and then beyond. Greater diversity, which is to say in technical terms, higher variance, means that unusual abilities at both ends of the distribution, high and low, are more common. Exactly how much more depends on technical measures of genetic difference and their expression. The effect could be small or large depending on such measures and on the social relevance of the particular gene expression.

The high end is what matters for high culture. Sub-Saharan Africa, now at last leaning towards liberal democracy, has entered on the blade of the hockey stick, growing since 2001 in per-person real income by over 4 per cent per year—doubling that is, every 18 years. A prominent Nigerian investment manager working in London, Ayo Salami, predicts an ideological shift among African leaders in favour of private trading as the generation of the socialist anti-colonialists born in the 1940s dies out. The 6 to 10 per cent growth rate available to poor economies that wholeheartedly adopt liberalism will then do its work, and yield educational opportunities for Africans now denied them.

The upshot? Genetic diversity in a big and rich Africa will yield a crop of geniuses unprecedented in world history. In a century or so the leading scientists and artists in the world will be black, a splendid irony on racism in Europe and Asia. Today a Mozart in Nigeria follows the plough; a Bashõ in Mozambique was recruited as a boy soldier; a Tagore in East Africa tends his father’s cattle; a Jane Austen in Congo is illiterate and spends her days carrying water and washing clothes. “Full many a gem of purest ray serene / The dark unfathom’d caves of ocean bear” wrote Thomas Gray in 1751. It won’t be the case by 2100.
"Genetic diversity in a big and rich Africa will yield a crop of geniuses unprecedented in world history"
Average real income per person in the world is rising, and this has every prospect of continuing. The result will be a gigantic increase in the number of scientists, designers, writers, musicians, engineers, entrepreneurs and ordinary businesspeople devising improvements which spill over to the now rich countries allegedly lacking in dynamism, or facing headwinds. Unless one believes in mercantilism or the business-school fashion that a country must “compete” to prosper from world betterment, even the leaky boats of the Phelpsian or Gordonesque “undynamic countries” will rise.

In short, no limit to fast world or US or European growth of per-person income is close at hand, no threat to jobs, no cause for pessimism—not in your lifetime, or even that of your great-grandchildren. Then, in the year 2100, with everyone on the planet enormously rich by historical standards, and hundreds of times more scientists and entrepreneurs working on improvements in solar power and methane burning, we can reconsider the limits to growth, and the falling sky.

Now read: Will artificial intelligence wipe out economists?