The Future Looks Good

I am very optimistic about the future of mankind in general and the United States in particular. This post will explain why, with reference to economic theory.

One of the fundamental lessons of economics is that wealth comes from productivity. Wealth, defined broadly, includes everything that makes our lives better, including material goods, leisure, health, a good environment, love, community, and human connection. All of these things are improved by any factor that improves the productivity of human endeavors.

People think that economists are money-obsessed, but an economist is actually more likely than most commentators to look at the big picture when analyzing human choices. For example, we understand that Facebook has given the world a massive increase in wealth and productivity. Facebook has dramatically decreased the time cost of 'purchasing' friendship and community. When people work less in order to spend more time on Facebook, they are sacrificing material goods to gain more social connections. This is a natural and rational response to the new, lower price of social connections.  Anyone who claims that Facebook decreases productivity is focusing only a limited slice of the human experience.

There are three overall categories of things that can affect productivity: technology, politics, and culture. Technology is any knowledge, tool, or infrastructure that helps you accomplish things or makes your life easier. Politics is the formal structure of government, and how laws and taxes affect human behavior. Culture is everything else, like religious doctrine, or how children are raised, or the prevalence of discrimination in a society, or shared social attitudes about education, that can affect people's ability to accomplish their goals.

Over the past few years, everything I read about technology made me more optimistic about the future, while most of the things I read about politics and culture made me more pessimistic. It seemed that there was a tug-of-war, with technology pulling us forward while the government wasted more resources and cultural changes harmed people's ability to be productive.

Even then, I was cosmopolitan enough to understand that humanity as a whole would probably be just fine even if things were getting worse in the United States. If you look at the total well-being of every person on the planet, then right now is the best time in human history, and things are getting better at a rapid pace. I had anticipated that the USA was going to experience a gradual decline, in relative terms, as the rest of the world got richer and freer and we got more dysfunctional.

Several things have changed this appraisal. The first is a dramatic improvement in our diplomatic and geopolitical situation over the last several years. Our deft handling of the Arab Spring is making friends all over the world, and our major rivals are revealing themselves to be venal and incompetent. China is making enemies all over Asia, pushing everyone there, including Vietnam and possibly even Myanmar, towards friendship with us. The Chinese regime is also under severe internal stress as the failures of state control become apparent, and its people are ever more vocal in demanding liberty and self-determination.

Another big improvement seems to be coming in education. Our education system is literally stuck in the dark ages; the 'production technology' of a teacher lecturing to a class comes from the days when books were too expensive for students to buy. In the past this was a source of pessimism, but now I predict that technology is going to shake things up, and discard much of the flawed old system entirely, more quickly than many people imagine. I think that online schools of various kinds will displace traditional lecture halls, and a system of electronic records will replace our antiquated credential-based signaling system. This will cause a massive boost in productivity and happiness, and probably some positive cultural change, over the next few generations.

From what I can tell, the USA is further along in developing online education systems than other countries. If we get it right, we will remain the market leader in higher education, just as we are today, and might extend our leadership into many other kinds of education. This would give us an incredible source of financial and social power.

Our short-term relative economic situation is also starting to look better. Europe is still in serious trouble, Japan is still stagnant, and China is showing hints of the kinds of economic imbalances that crippled Japan two decades ago. Meanwhile, we have made a lot of progress at getting rid of the debt imbalances that played a big part in the crisis, and a general recovery seems to be progressing nicely.

In the middle to long term, things still look good for us. We still dominate high tech. iPhones may be made in China, but all of the profits and the good jobs go to Americans. All of the major players in the tech industry are American; the foreign companies have all been reduced to selling commodity products. Of course that itself means nothing, given how fast the tech industry changes, but we always seem to dominate the cutting edge, no matter how things change, which is a good sign. We will probably also have a comparative advantage in the 'App Economy' that is developing. And as much as is annoys me, our entertainment industry is a reliable source of exports and profits and cultural influence. Given that a great deal of the economy of the future will revolve around tech, entertainment, and education, we are in a very good position.

There is a very real possibility that we will soon see a world that is almost entirely free and democratic, and that we will remain the economic, political, and cultural leader of that world.

Our internal politics and much of our culture remain a mess, but as the rest of the world improves, it will force us to improve as well. Right now, an extremely productive American has the choices of putting up with taxes and regulations, lobbying for government change, breaking the law, or not working. The latter two are not credible threats for most people, and true wealth generators do not have a comparative advantage in lobbying, so the people who generate most of the wealth have relatively low political bargaining power and cultural influence.

As long as you will earn more money working in the USA than anywhere else, the government, driven by the desires of society, will be able to extract the difference from you, plus a bit more because moving is expensive. But if enough wealth-generating Americans could credibly threaten to move to India or Estonia and make as much money, then the government would be forced to lower taxes or regulations and/or do something to make the Americans more productive again.

The USA keeps slipping down in the rankings of economic freedom, corruption, and a few other measures of political quality. Partly this is because we are getting worse, but mainly it is because other places are getting better. Pretty soon this will generate a powerful moral and practical case for reform that favors wealth generation and productivity over populist redistribution.

The economic conditions of the rest of the world form a lower limit to our productivity and prosperity. We will see one of two possible futures. Either Americans are much more productive than people elsewhere, and the government extracts that difference from people, or we are just as productive as the rest of the world, and the government must remain lean and efficient to compete. I think that other nations will get a lot better, but that we will improve at least as fast. The only real threat to our prosperity is the rest of the world getting a lot poorer and less free, but the odds of that look are very low right now.