Assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not—if we look into the future—the permanent problem of the human race.—John Maynard Keynes (1)
In 1930, John Maynard Keynes wrote that the solution to “the economic problem” of scarcity was within reach. Keynes pointed out that even as the Great Depression was beginning the US and Europe were far richer than they had been before the Industrial Revolution. If the world economy grew at just 2% a year, we would be nearly 8 times richer by 2030. That would be enough, Keynes thought, to finally free the human race from the “struggle for subsistence.”
Billions of people struggle for subsistence today. Nevertheless, Keynes’ prediction was probably not far wrong. The approximately 7 billion members of the human race already produce around $70 trillion dollars worth of goods and services every year. That means that as a species we produce about $10,000 of value a year for every person on the planet. That may not be much by the standards of rich countries, but it is certainly enough to meet the most basic needs of every living human being. It’s around 4 times more than we produced in 1930 (see here for one estimate of how global per capita income has grown). At this rate we’ll reach Keynes target only 20 years later than he thought.
Already this growth has meant tremendous improvements in human welfare. The number of people living in what the World Bank defines as “extreme poverty” fell by about 700 million over the last 40 years. Over the same period the early childhood mortality rate dropped 50%. A study in The Lancet found that between 1970 and 2010 the average life expectancy at birth for both men and women increased 12 years. (2) Some 1.3 billion people still live below the international poverty line, but collectively we already have the resources to eliminate most extreme poverty if we choose to.
There are probably limits to how long the world economy can continue to grow at the same rate. Even low levels of exponential growth run up against physical constraints surprisingly quickly. A rough calculation shows that if our energy use continues to grow as the same rate it has over the last few hundred years, then we will consume all the Earth’s solar energy—and overheat the planet in the process—in just a few hundred more years. But we will be rich enough to eliminate poverty well before we run up against any thermodynamic limits on growth.
But two factors are likely to depress growth in the immediate future. First, growth up to this point has been fueled—quite literally—by the planet’s limited supply of cheap resources. As a species we are using up the principal of planetary wealth we inherited, rather than surviving on the interest it produces. It’s not necessarily a bad thing that we are consuming or destroying these resources faster than they can replenish naturally. We would not have been able to develop as quickly as we have without this ready supply of fossil fuels, nitrogen, phosphorus, clean air, and clean water. Nevertheless, we are reaching the point where many of these resources are becoming expensive to use. Until we find cheap, renewable alternatives—and have repaired the damage we have already done to our environment—the increasing costs of basic inputs is likely to slow economic growth.
Second, the economy is likely to slow as the world population ages. Since the middle of the last century the world economy has benefited from what’s known as “the demographic dividend.” Falling fertility rates—first in the developed world, then everywhere else—meant fewer children for working adults to support. It meant that a larger part of the population was engaged in productive work. But falling fertility rates now mean that as that large generation of workers begin to retire, there are fewer new workers to replace them. At the same time, longer life spans mean that people are spending a larger part of their lives in retirement. The result is that dependency ratios—the dependency ratio is the ratio of the number of dependents to the number of working adults—have begun to go back up. If current trends continue, many countries will have as many dependents as working adults within forty years. And, all else being equal, a smaller percentage of working adults means a lower per capita income.
In the immediate future, whether growth rates stay high probably depends on productivity growth. The sustained growth of the last few hundred years is unprecedented in human history. We can’t assume that it will continue indefinitely. In an influential paper, Robert Gordon argues that most of the gains in productivity since the Industrial Revolution were the result of just a few 18th and 19th century innovations—the steam engine, the cotton gin, railroads, electricity, plumbing, and the internal combustion engine—that changed how we produce and move goods. (3) While these basic technologies still haven’t been put fully into use everywhere, attempts to extend them have begun to yield diminishing returns in the developed countries.
Productivity growth slowed dramatically in the US in the early 1970s. Although it sped up again a little in 1995—right around the time when the adoption of computers might be expected to have an impact—it’s still slower today than it was 40 years ago. It’s certainly hard not to get excited about the potential of information technology. Many of its applications—to genetic engineering or cognitive science, for example—are relatively new. It may take decades for their real impact to be felt. In the long run, improvements in our ability to process information could even increase the rate at which we can come up with new innovations. But so far it’s not clear that information technology has had the same transformative impact of earlier innovations. What Robert Solow wrote back in 1987 is still largely true: “You can see the computer age everywhere but in the productivity statistics.” (4)
Meaningful new ideas may be harder to come up with as technology becomes more complex. Jonathan Huebner suggests that there may even be a practical limit to human innovation. (5) Huebner looks at scientific and technical milestones and concludes that the rate of innovation may have peaked in the US around 1873. In spite of recent advances in information technology, he argues that the rate of innovation has been in decline since then. In this view, technical expertise grows logistically rather than exponentially. That is, it slows as it approaches a limit it can never quite reach. Huebner estimates on the basis of current trends—although I’m not sure you can extrapolate progress this way—that we may already be at around 85% of the point beyond which further innovation becomes impossible.
Growth will certainly slow if the cost of resources increases, labor force participation falls, and productivity growth weakens. So the day when we solve the economic problem of scarcity may be a little further away than Keynes imagined. But the rate of growth doesn’t need to stay high for us to continue to get rich. As Scott Winship points out, while economic growth has slowed in the US, the real, absolute gains in income and productivity are near historical highs. (6) Since we are four times richer today than we were in 1930, 1% growth today is the same absolute increase as 4% growth then. Winship calculates that between 2000 and 2007—a period of relatively slow growth—the US economy actually increased $650 (in 2010 dollars) per person every year.
At that rate, even linear growth would still be pretty good. If our ideas about how we should live shift as we get richer—as to some extent they seem to—then smaller percentage gains will feel like smaller gains. But our real needs—for adequate nutrition, basic health care, a decent education—do not grow exponentially with our expectations. At the rate the world economy is growing, it shouldn’t be too long before we have enough money to provide every person in the world with what by today’s standards would be a fairly high quality of life. Even if Huebner is right that we are close to the frontiers of technical possibility, it should be possible to eliminate real scarcity. If the entire world were just as productive as the richest countries already are, we would collectively be around five times richer than we are today.
We really are close to freeing ourselves from the struggle for subsistence. We may never be satisfied either individually or as a species with what we have. We are likely to continue to compete with one other for the biggest pieces of the economic pie. But we are already at the point where poverty is caused more by inequality than by real scarcity. Soon we should be wealthy enough for everyone on the planet to live full, healthy lives.
As we become free from the individual struggle for survival, we need to think more about our long-term future as a species. We have to find a way to provide food, water, and power to billions of people without doing catastrophic damage to the planet or to ourselves. As we’ve become wealthier and more productive, we’ve created—as I’ve previously argued—a whole new set of environmental and technological threats to our survival as a species. Building a healthy, enduring civilization will be an enormous challenge. But at least it should be a challenge we can afford to face.
(2) Haldong Wang, Laura Dwyer-Lindgren, Katherine T. Lofgren, Julie Knoll Rajaratnam, Jacob R. Marcus, Alison Levin-Rector, Carly E. Levitz, Alan D Lopez, and Christopher J.L. Murray, “Age-Specific and Sex-Specific Mortality in 187, 1970-2010″ in The Lancet (December 15, 2012)