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April 13, 2014
David Warsh, Proprietor



A Hundred Years from Now

After spending a couple of days last week at the annual conference on macroeconomics of the National Bureau of Economics (more about that in July), I spent the remainder of my time last week reading In 100 Years: Leading Economists Predict the Future  (MIT Press, 2013), a collection of essays edited by Ignacio Palacios-Huerta, a professor of management and strategy at the London School of Economics. His Beautiful Game Theory: How Soccer Can Help Economics is scheduled to appear next month.

What does it take to persuade ten distinguished economists to go out on a limb?  An invitation, for one thing, to be included in an illustrious list. A reminder, for another, of just how, instructive it had been when John Maynard Keynes, in 1931, published a little essay he titled “Economic Possibilities for Our Grandchildren.” Keynes’ forecast has been a touchstone ever since – an industrial world substantially richer than in his day, fifteen-hour work weeks, the challenge of putting leisure to constructive use, and economists hopefully regarded as “humble, competent people, on a level with dentists.” And, of course, a promise to hound the authors until their carefully-edited manuscripts had been assembled for the press – in alphabetical order.

Thus Daron Acemoglu, of the Massachusetts Institute of Technology, distinguished ten trends he expected to continue and ventured these predictions: more democracy and broader rights; advancing technology; unrelenting economic growth; uneven development; further hollowing-out of industrial economies through the loss of middle-skill jobs; the trend toward convergence in health and longevity outcomes to continue; slower globalization; less violence; more secularism; and world population reaching a sustainable plateau in the 22nd century.

Angus Deaton, of Princeton University:  “Perhaps the major uncertainty, on a world scale, is whether it will be possible to deal with climate change.  It is hard to be optimistic about any global agreement today, and perhaps there will have to be great suffering and destruction before people come together to make changes. I do not know how this will come about.  But the forces for progress and for collective action against imminent danger are also strong and I wound put my money on their winning out.”

Avinash Dixit, of Princeton University: “At least one prediction can be made with high confidence; think of it as the central path in a cone.  On it, in the course of the next century, there will be several financial and economic crises.  Each crisis will be preceded by a boom and by a state of euphoria, when almost everyone will believe that ‘this time is different,’ that we have learned to avoid crises and have finally learned the secret of how to sustain the Great Moderation.”  Politics: contentious, but with civility and respect.

Edward Glaeser, of Harvard University:  Increasingly widespead wealth and prosperity, unless.  Terrorism, either nuclear or biological; natural disasters, including pandemics and famine; political paralysis:  any or all of these could lead to a “self-protection economy,” organized around the fear of loss, resulting in the isolation of groups and regions, a kind of pulling-up-the-ladder that would be inimical to further growth.

Andreu Mas-Colell, of Pompeu Fabra University:  “Issues related to the possibility of genetic selection and breeding in living beings, especially in humans, will be among the more difficult problems we may have to face, not just from the technological and economic perspectives, but primarily from the legal and moral viewpoints…. A biologically ‘dichotomized’ society is highly undesirable, and we all must trust that a responsible society will endeavor to avoid it … [but what if] in the aggregate we are not rich enough to guarantee everyone a generous application of [new technologies’] benefits?

John Roemer, of Yale University: “I believe that the remarkable achievement of the advanced economies during the twentieth century was their progress toward equalizing the distribution of income….  This reduction … had been achieved along with average real income growth of approximately 2 percent annually…. But if we are to deal successfully with climate change, I think that average income growth in the advanced countries will have to be limited to about 1 percent annually over the next century…. It is difficult to imagine a political realignment occurring that would render this path politically feasible in the United States given its recent history…. Of course one cannot wish for a catastrophe, but without one, can there be hope for change in the American political trajectory?”

Alvin Roth, Stanford University:  Many mysteries to solve: mental-performance-enhancing drugs; commoditized reproductive services; enhanced search techniques; organ transplant and/or regeneration techniques – economists as engineers instead of dentists. “I think the trend of increasing prosperity will continue, but that it will not necessarily bring us all lives of leisure, as Keynes predicted in 1931.  Many people will work harder than ever before….. Some kinds of education will become commoditized, but among the matching markets that we see today, selective admissions to elite universities will remain, as will networking and matchmaking for family formation (under a wider variety of marital forms), and, perhaps increasingly, for research collaborators and other kinds of business partners.”

Robert Shiller, of Yale University: He expects that new forms of insurance will emerge to diminish all kinds of risks – income lost due to economic fluctuations or globalization, harm from war, terrorism, global warming or any sort of environmental risks.  Never mind the politics of pooling these risk; the technologies are at hand in big data.  Shiller draws on his series of books proposing financial reform, most notably the first – Macro Markets: Creating Institutions for Managing Society’s Largest Economic Risks (Oxford, 1994).

Robert Solow, of MIT: “If the underlying source [of growing inequality] is embedded in the composition of aggregate output and the nature of technology, then the shift away from labor income would be hard to reverse, We are not good at large-scale redistribution of income, and we do not seem to be getting any better. … But even a modest extrapolation would seem to call for a response.  That might take the form of a democratization of capital: as wage income shrinks (relative to the total), ordinary people could draw more of their income from capital.  The capital would have to come in part from their own savings — for example, funded pensions – and in part from capital accumulated on their behalf by the state, maybe in the form of mutual funds. You realize that this is a fantasy. The reality will be more pedestrian.”

Martin Weitzman, of Harvard University: “I focus on the nexus between humanity and nature as viewed through the lens of geoengineering. Unless there is some currently unforeseeable technological breakthrough making large-scale non-carbon energy generation much less expensive in the future, it is extremely difficult for me to imagine a binding international agreement being reached on significant deductions in carbon emissions.  By contrast, the temptation may become very great for some medium-developed nation feeling itself under climate-change siege to unilaterally geoengineer itself (and the planet) out of high temperatures by seeding the stratosphere with sunshine-reflecting particles because it is so extraordinarily cheap. A geoengineered sunshade would involve serious risks – especially one thrown up unilaterally – but doing without might be impossible, if temperatures rise more rapidly than expected.  The temptation to moral hazard occurs if  and when various publics comprehend how relatively inexpensive this approach might be compared to controlling emissions.  Then the clamor might grow to just throw up an umbrella. At that point, Weitzman says, Nature, already powerfully altered, will have become an afterthought.

Economic Principals takes climate change very seriously, so I lingered longest on the essays by Roemer and Weitzman. My sense is that humans are pretty good at dealing with peril – even humans arrayed in diverse nations, cultures, and classes with competing interests. I expect that the bridges identified by various authors will be crossed, one way or another, as we arrive at them. I can’t be sure that humankind will learn to coexist with itself, and with nature, but you can’t prove that it won’t.

When I was done with In 100 Years, one prediction stuck in my mind more than any other. It was the mathematical economists Mas-Colell who, almost in passing, wrote, “I believe that Tiebout effects will be increasingly felt on a global scale.” He should know, having long been involved in government, in Brussels and his native Catalonia Spain. As the Wiki says, CharlesTiebout is the economist fundamentally associated with the concept of voting with one’s feet. His Tiebout model was designed to show how people choose their communities, within limits, simply by relocating and choosing to pay higher or lower taxes and prices (or immigrating, or simply fleeing, and choosing to bear greater risks). It’s the way suburbs emerge around cities – some with good schools and fancy houses, others with very low rents, and the rest at every stage in between. It covers refugee camps, too. That this ineluctable force of human nature will continue is the prediction I most confidently expect to pan out, in a century of global change.

 

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