Random Thoughts

Postcard from The Twilight Zone

Regular readers of this blog will know that I've posted several times on economic growth in the 21st century. My last several posts unrelated to economic growth have had comments by a fellow who goes by "GK," asking me (and not politely either) when I was going to update my predictions for economic growth in the 21st century.

I forget what led me there, but I came upon a post at a blog called The Futurist that dealt with economic growth in the 21st century. Eventually, I realized that the blog was run by "that guy"..."GK."

Well, to make a long story short, apparently I've been banned from ever commenting on The Futurist again...apparently for "excessive disagreement." Not that any of my comments were offensive...just that they did not agree with The Futurist or include any comments on how brilliant he is. Before I'd realized I'd been banned, I'd composed a comment. I hate to waste writing, so here it is. The quotes are of GK:

"The big assumption here is that these 'human brain equivalents' will function in the same economic way as present humans. There is no basis to support this assumption."

Actually, there is a firm basis to support the idea that a computer human brain equivalent will actually have a bigger impact on economic growth than a human brain. Computers never sleep. They never are addicted to alcohol or drugs. They never go to work distracted by their marital/relationship problem. Etc.

 "Aha! But you cannot ignore software."

OK, so don't ignore software. Provide your estimates for when 1 million, 1 billion, and 1 trillion HBEs will be added, including software. (And also not including software, since that is the only way to give an apples-to-apples comparison with my estimates.)

 "Again, I am generally in agreement with your December 2003 numbers, so whatever you thought until then has more corroboration that what you think now."

Corroboration, schmorroboration. The accuracy of predictions isn't a function of how many people agree with the prediction. The vast majority of economists agree that economic growth in the 21st century won't be substantially higher than economic growth in the 20th century. This includes Nobel-prize-winning economists such as Robert Lucas Jr. The future will show they are wrong (or else computers will take over the world, and then all bets are off.

 If you do your own analysis of the number of human brain equivalents (excluding or including software) added each year up to your predicted time of the singularity in 2060-2065, I think you'll see that the number of HBEs added each year are not compatible with the low rates of economic growth you're predicting.

 Or another way of looking at it: If computers are 50% of the economy at the time of the singularity, and computers are increasing in capability by 78% per year at that time, how is it that the overall economy is only growing by 6.5% per year?  

Why every single person will be a millionaire by 2100 (and why we should care)

I wrote that every single person in the world in 2100 will be a millionaire (in year 2000 dollars) because if the wealthier people in 2100, “…give only 2 percent of their lifetime income to charity, that means even the poorest people would be able to get a couple million dollars.”

Andrew Reynolds writes about my analysis:  “Not quite correct. It really depends on the standard deviation of income. Personally, I believe that the deviation will reduce, so that your analysis is pessimistic. But I know others would argue otherwise. Do you have any justification for the need to only donate 2% of lifetime income?”

Oy vey.

You’re right that I was simplifying, because I didn’t want to take the time to do a careful analysis.  The amount of money we’re talking about here is so staggeringly large that there is no need to do any sophisticated analysis.

In 2100, let’s say there are 10 billion human beings…of the hydrocarbon variety, anyway.  If world per capita GDP is $10 million, and per capita income is 75% of that, or $7.5 million, the total world income in 2100 is 10 billion times 7.5 million, or an absolutely staggering 75 QUADRILLION dollars.  Let’s take 2 percent of just that *one year.*  That would be $75 quadrillion times 0.02, or $1.5 quadrillion of charitable giving.  To put it in more appropriate scientific notation (since it’s so staggeringly large) we’re talking about charitable giving in ONE YEAR of $1.5 x 10^15.  Divide the amount for that ONE YEAR among 10 billion people, and you have…

$1.5 x 10^15 divided by 10 x 10^9 people =  $150,000/recipient for that one year.

So even if that 75 quadrillion was earned by a SINGLE PERSON, and every one of the other 10 billion people earned ZERO income, that ONE person could afford to give a mere 2 percent of his income from that ONE YEAR, and everyone else in the world would get $150,000 in that year.  If he did that for 6.3 years, they’d have earned $1 million.  That wouldn’t make them millionaires, but if they spent their money wisely, they’d be close.

Let’s do a slightly more realistic, but still incredibly conservative analysis.  Suppose that single person who earned the $75 QUADRILLION gave away 20% of his income that year, instead of only 2%.  (After all, what does one person need with even $60 quadrillion in one year?!)  Then, every person in the world would have an income that year of $1.5 million.  If they saved 66 percent of that, they’d be millionaires, from that *one year.*

To do an even more realistic analysis—though one shouldn’t be needed at this point—currently, the lowest 40 percent of the world’s population earns only 5% of the world’s income.  In today’s terms, that means that about 2.5 billion people earn about $1.6 trillion, or an average of $640 per person (about $2 a day).

Global policy.org analysis of income inequality in the world

Let’s say that in 2100, that same situation holds true…the lowest 40 percent earns 5% of the world income.  That would mean that in 2100, about 4.0 billion of the world’s poorest people would earn about $3.75 QUADRILLION, or an average of $938,000 (that’s 938 THOUSAND) dollars per year!  (And that’s without any charitable giving from the richer people at all.)   THAT’S why every single person in the world in 2100 is going to be a millionaire. 

The point of this whole analysis is that the numbers are so staggeringly large, that no real analysis is needed.  ;-)

Once again, Thomas Schell’s comment that, “…the descendants of today’s poor, who may be less poor than their parents, but are likely still to be poorer than those in today’s rich countries…” is wrong. Wayyyyyyyyyyy wrong. 

And if his HUGE mistake is corrected, it completely obliterates any case that can be made for attempting to reduce CO2 emissions at present or in the next few decades.

Why economic growth will be spectacular

I've previously predicted mind-bogglingly spectacular economic growth in the 21st century.  My reasoning is fairly simple:

1)  Human brains (or their equivalents) are what create wealth (see Julian Simon), and

2)  Computers can be expected to equal and then vastly exceed human biological brains in the 21st century (see Ray Kurzweil).

But I've never actually worked out the numbers...until now.  Here is a graph of additional "human brain equivalents (HBEs)" added each year, due to increases in computer power.  The graph shows very few HBEs added at the beginning (only ONE HBE added in 1995!)...but absolutely astounding numbers added in later years...e.g. 1 million HBEs added in 2015, 1 billion HBEs added in 2025, 1 TRILLION HBEs added in 2033...all the way up to 1 SEPTILLION (1 x 10^24...or 1,000,000,000,000,000,000,000,000) HBEs added in the year 2057.

How did I do this calculation? 

1)  I took historical data for the number of personal computers produced each year (the value was only 17 million in 1990, but increased to 175 million in 2005)...and then projected into the future at an increase of 7% per year.  (Probably a very conservative assumption.)

2)  I multiplied the number of personal computers produced by the power of a the computers relative to a human brain (2 x 10^16 calculations per second) as predicted by Ray Kurzweil.

Anyway, THAT'S why economic growth will probably be so spectacular in the 21st century:  by the second quarter of the century, we will be adding to the effective human brain population at a staggeringly large rate.

Implications of expected 21st century economic growth

So let's say that average world per-capita GDP exceeds $100,000 by 2050, and is well over $20,000,000 by 2100. What does that imply?

1) More Evidence that Global WarmingWorries are Nonsense: It's already obvious to those of us who have studied the matter that the Intergovernmental Panel on Climate Change's (IPCC's) projections for methane concentrations, CO2 emissions and concentrations, and temperatures in the 21st century constitute the greatest fraud in the history of environmental science. But even if the projections were anywhere close to accurate (which they are not), it probably would still not be moral to do anything today for the benefit of people living in 2100. As Wilfred Beckerman points out, people in 2100 are going to be "incomparably richer" than we are today. And his basis for saying that was 1.5% per year per capita GDP growth in the 21st century!

2) The Kids are Gonna Be Alright: It bothers me that the U.S. Social Security system is currently a Ponzi scheme , and that people who retire in generations X, Y, and Z (i.e., the generations after the Baby Boomers) are going to put a whole lot more into Social Security than they will ever get out. That is, their return on "investment" will almost certainly be negative. But I gotta admit, knowing how rich anyone who retires after about 2050 (or a bit earlier) is going to be, the fact that they're going to get hosed on Social Security now bothers me much less.

3) Should be Very Interesting Times: It's hard to imagine living in a time where essentially no one has to work a day in their entire life. One might think that people will be slackers. But based on billionaires with whom I'm acquainted (no need to drop names) I think that most people will work just as hard. They'll merely work only on stuff that interests them. And with all that dough, they should be able to accomplish some really amazing things. For example, based on what I've read, constructing a "space elevator" is estimated to cost $10 billion. Well, let's say that estimate is too low by a factor of 10. That's 100 billion. Well, that's a hundred thousand people willing to give $1,000,000. Right now, it's hard to find a hundred thousand people each with a spare $1,000,000. But half the population of the planet has 10 times that $1,000,000, it should be easy to find a hundred thousand people willing to try it. Just because it's so interesting. Or fusion energy. Maybe that will take $100 billion to commercialize. Well, circa 2050+, that should be no problem. (That cuts CO2 emissions to zero, by the way!)

4) Machines Do Everything: Paul Ehrlich (don't get me started), in his incredibly ironically titled, "Betrayal of Science and Reason," had a passage that made fun of economists for even thinking that economic growth could continue for several hundred years at rates observed during the 19th and 20th centuries. Being the MacArthur "Genius" that he is (don't get me started) he calculated that continuing such growth into the 23rd century would produce an average per capita annual income for the world of more than $1 million. He snidely asked who would do all the chores like garbage collection, if everyone was making that kind of money? Well, Paul, they're called robots. It's really unfortunate that you probably won't live long enough to see just how ignorant your question was. But your children and grandchildren will.

5) People Become Machines: There's a lot of speculation about humans using genetic manipulation to get smarter children. I think Ray Kurzweil is correct here, too. People won't bother with genetic manipulation, which can only carry a human brain so far. Electronic brain implants that have way more capability will be way people will go. (Maybe that "people will go" is literal. Homo Sapiens are defined mainly by their brains. When people have brains that are 1000+ times more capable than their current brains, can they still be considered the same species?)

Those are just a few implications that I can think of right now. Hopefully, I'll live long enough to see whether they come true.

3rd thoughts on 21st century economic growth

Arnold Kling asks the question:

"If in 1900 you had used previous economic growth to predict growth in the twentieth century, how far wrong would you have been?"

Geez, he's good! I hope the kids he teaches appreciate that! :-) That got me thinking (that's what good teachers will do for you), and led me to prepare the following:

1) A table of the annual per capita GDP growth for the period from 1600-1900 based on DeLong (1998):

Time period...Percent Annual Per Capita GDP Growth

1600-1650.......................0.12
1650-1700.......................0.18
1700-1750.......................0.16
1750-1800.......................0.18
1800-1850.......................0.87
1850-1900.......................1.65

2) Plot those six data points, with the end year on the x axis, and the percentage annual growth on the y axis.

3) Then, draw a straight line regression through the last three data points. The regression line gives an equation of y = 0.0146x - 26.195. If I plug in the year 1950, which is the middle of the 20th century, I get an annual per capita GDP growth rate of 2.28 percent.

So that's what my prediction of the average per capita growth rate for the 20th century would be, based on the data up to the year 1900.

So what was the actual annual per capita GDP growth rate for the 20th century? It was 2.29 percent! In other words, I would have been virtually dead-on...accurately predicting per capita growth in the 20th century, based on data up to 1900.  Smokin'!

4) What would that regression line do for predicting growth rate in the 21st century? To get that answer, we plug the year 2050 into the equation y = 0.0146x - 26.195. We get an average annual per capita world GDP growth for the 21st century of 3.74 percent.

5) That got me to thinking that I ought to add the data from the 20th century to the 6 data points I had previously. The data points for the 20th century are:

Time period...Percent Annual Per Capita GDP Growth

1900-1950.......................1.76
1950-2000.......................2.83

6) Now, determine a regression line for the five data points ending in years 1800, 1850, 1900, 1950, and 2000. The regression equation is y = 0.124x - 22.033. Plugging in the year 2050, we get a world average annual per capita GDP increase for the 21st century of 3.39 percent.

The whole mess looks like this:

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7) But even in the face of this information, I'm going to rely on the analysis of Ray Kurzweil. I'm going to expect that computers will be comparable in ability to a human brain in the 2020-2030 time frame. So I'm going to boost my predictions of per capita (P/C) economic growth for the 21st century way beyond those I made in December 2003. My new predictions are:

Time..........Annual P/C GDP growth...Annual P/C GDP growth
Period..........Oct 2004 prediction......Dec. 2003 prediction

2000-2010................3.0...........................2.5
2010-2020................3.5...........................3.0
2020-2030................4.5...........................3.5
2030-2040................6.0...........................4.0
2040-2050................8.0...........................4.5
2050-2060...............11.0...........................6.0
2060-2100........the differences keep growing...!

8) When I plot my new (October 2004) predictions with my old (December 2003) predictions, as well as the extrapolation of the linear regression from the 1800-2000 data...and the predictions of Arnold Kling, Wilfred Beckerman, and Jesse Ausubel...I get this mess:

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Or expressing it in per capita GDP, rather than per capita GDP growth rate, I get this:

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Executive Summary

Economic growth in the 21st century will be spectacular. Growth will be way beyond anything in the "economic literature," as reported by the IPCC. By the end of the century, average world per-capita GDP will be well over $20,000,000 per year. In fact, world per-capita GDP will cross $100,000 sometime around 2050. This has huge implications for just about every aspect of thinking about the 21st century. More on the implications later. (I know I promised to discuss implications at the end of my "second thoughts"...but I really mean it this time.)

Second Thoughts on 21st Century Economic Growth

I've had a chance to think further on the postings I did in December 2003 on economic growth in the 21st century. My goal back then was to get as many Big Name economists, technologists, and environmental leaders to make projections as possible. In contrast, I didn't think much about the subject myself. In fact, for my predictions, I deliberately used some projections that I'd made many months before on Brad DeLong's (economics) website.

I've had occasion to do some further thinking about economic growth based on an article by Tim Worstall at Tech Central Station. Tim wrote that the Intergovernmental Panel on Climate Change (editor's note: the IPCC, the folks who bring us bogus projections for methane, CO2, and temperature) is projecting that, by the end of the 21st century, the average world GDP per capita will be approximately equal to the U.S. today.

Tim also had a sub-point, based on an analysis of the IPCC economic projections by Ian Castles and David Henderson that claims that the IPCC eonomic growth projections are too rosy (too high).

Well, I had to address that! :-) I made the comment that the world GDP per capita in 2100 will likely be much *higher* than the U.S. GDP per capita today. In fact, by my previous analysis, the average per capita world GDP will cross $100,000 circa 2070, and will reach the astounding level of $1.7 million in 2100. (And the $100,000 and $1.7 million are in year 1990 dollars.)

So that got me thinking: "What exactly were the IPCC projections regarding economic growth, and why did they make those projections?"

After a bit of research, I found Figure 3-10, from an IPCC Special Report on Emissions Scenarios. The figure contains per-capita annual GDP growth rates used by the IPCC, versus what they found in the "economic literature." This figure can be tabularized as shown below:

Years..........IPCC Projection............Economic Literature
..............(min/max/avg of both)........(min/max/mean)

1990-
2020.............0.8/2.4/1.6......................0.4/2.3/1.5

2020-
2050.............0.7/3.8/2.3......................1.2/3.9/1.6

2050-
2100.............1.2/2.8/2.0......................0.7/2.3/1.2

If the numbers in the table above are converted to single values for the 1990-2100 time frame, I get the following results (again, this is per-capita annual GDP growth rates):

Years..........IPCC Projection...........Economic Literature
..............(min/max/avg of both)......(min/max/mean)

1990-
2100...........1.0/3.0/2.0......................0.5/2.7/1.4

If we use a based on these average percent growths, and a 1990 per capita GDP for the world of $5204 (DeLong, 1998...value is in 1990 dollars), we get the following:

Parameter...........IPCC Projection.........Economic Literature
....................(min/max/avg of both).....(min/max/mean)

Ratio of GDPs,
2100/1990..........2.8/24.8/8.6..................1.8/19.4/4.6

GDP in 2100,
in 1990$....... 14600/129000/44800.....9400/101000/23900

So...what can we see from this whole mess? (Wake up, people! This is important!) Well, as Castles and Henderson point out, the IPCC economic projections for 2100 are quite a bit more rosy than the "economic literature." The minimum projection from the IPCC is $14,600 vs $9,400 from the literature. The maximum projection from the IPCC is $129,000 vs $101,000 from the literature. The average of the high and low from the IPCC is $44,800 vs a mean of $22,900 from the literature.

But even that's not really important (sorry, Ian and David). What's really important is how spectacularly and unquestionably wrong the "economic literature" is! My previous calculation for the world per capita GDP in 2100 (in 1990 dollars) was $1,700,000. And that calculation was intended to be neither "optimistic" or "pessimistic." It was intended to be essentially a "50% probability" number. And Arnold Kling's calculation for 2100 was...well, let's just say it was over $20,000,000, and leave it at that. And I now agree that Arnold Kling's number is more likely to be correct.

So we have "the economic literature" with a per-capita GDP mean value in 2100 of $22,900, versus Arnold Kling saying over--way over, in fact!--$20,000,000. What in the world is going on?! Is Arnold Kling a lunatic or completely ignorant, such that he's off by *more* than a factor of 1000?

I don't think so. I think he's right (plus or minus a factor of 10). And I'm not a lunatic or completely ignorant. (Certifications of non-lunacy and incomplete-ignorance available on request.)

I think the "economic literature" (at least as represented by the IPCC) is stupendously wrong.

In order to check about that, I searched the Internet a bit. And I came up with this analysis, by Robin Hanson. Ah! There's some support and some sanity. To those people who wrote the "economic literature" that the IPCC referred to, I say y'all are hopeless amateurs. Arnold Kling and Robin Hanson are right, and y'all aren't even close.

This whole deal has huge implications for just about every aspect of thinking about the future. And not just the distant future, but the future of people who are even young adults today.

I'll post more on some of the implications for this later. Until then, I welcome comments. (Especially from economists!)

Errata: Numbers in italics are corrected from original post. Original post had values of 2.0%, 12.2, and $63,500 for maximum from "economic literature." Should be 2.7%, 19.4, and $101,000. For mean from "economic literature," original post had 1.4%, 4.4 and $22,900. Should be 1.4%, 4.6, and $23,900.

Why Social Security really is a "Ponzi scheme"

In other venues (e.g. Berkeley economist Brad DeLong's weblog) I have called Social Security a "Ponzi scheme"...and have challenged others to admit that fact. Or debate me. So I'm providing a forum here for the debate.

Resolved: "The Social Security System of the U.S., as it is currently operating, is a Ponzi Scheme."

Opening Argument for the Affirmative

First we need a definition of a "Ponzi scheme." I'll get one from Google's cool "web dictionary" (type in "What is a "Ponzi scheme"? into Google):

"A fraudulent scheme. It is a specific form of pyramiding in which money paid by later investors or contributors is used to pay inflated returns to earlier investors — until the funds dry up because no more contributors can be found."

Definition of a Ponzi scheme

Now, is Social Security a "specific form of pyramiding in which money paid by later investors or contributors is used to pay inflated returns to earlier investors--until the funds dry up because no more contributors can be found?"

Well, duh! Yes, that's exactly what Social Security is!

The initial contributors to Social Security got absolutely astounding returns on their "investments." Here is what happened to Ida May Fuller, the very first person to receive a Social Security payment:

"Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits."

Ida May Fuller, first big winner in the Social Security Ponzi scheme

That is an absolutely perfect example of a pyramid scheme: the very first contributor gets a better deal then any other later contributor. But this wasn't just true of Ida May Fuller...the average return on "investment" was tremendously good for the first generation of people to retire on Social Security...because they essentially paid in nothing, and got back payments from the later generations.

But what about the Trust Fund?

Some people who claim that Social Security isn't a Ponzi scheme point to the Social Security "Trust Fund:"

Paul Krugman pretends there is a Trust Fund

But the "Trust Fund" is a sham. It has no real assets. It contains slips of paper (or electrons) that donate obligations to TAX...not true assets. As a matter of law, Congress does NOT have a legal obligation to actually raise the taxes as necessary to meet the those obligations. The "funds" in the "Trust Fund" essentially have no effect whether people who are paying into Social Security right now will get the money they pay in now out in the future. (Let alone with any "return on 'investment'"!)

Social Security IS a Ponzi scheme.

Economic growth in the 21st century

See previous 3 posts, concerning economic growth in the 21st century. I sent requests for predictions to approximately 30 people. I received replies from Jesse Ausubel, Wilfred Beckerman, and Arnold Kling.

1) Jesse Ausubel predicted a per-capita GDP growth rate of 1.7% per year. His reasoning was that 1.7% was the per-capita GDP growth rate of the United States in the 20th century, and it would be reasonable to think that the world would match that growth rate in the 21st century.

2) Wilfred Beckerman referred me to two of his books, including "A Poverty of Reason." "A Poverty of Reason" discusses potential world economic growth in the 21st century. It notes that many predictions for the annual growth in per-capita GDP are in the 1-2% per year range. I chose the midpoint, or 1.5% per year.

3) Arnold Kling predicted per capita GDP growth of 3.5% for 2000-2010, 4.5% for 2010-2020, 6.0% for 2020-2030, 10% for 2030-2040...and just keeping on rising after that.

4) I predicted per capita GDP growth of 2.5% for 2000-2010. My reasoning was that this was slightly above the average during the entire 20th century, which was 2.2%. For 2010-2020, I predicted 3.0%. And I predicted that the growth rate would just keep rising with each subsequent decade (i.e. 3.5% from 2020-2030, 4.0% for 2030-2040, etc.)

In my opinion, any prediction of world per-capita GDP growth that's less than the 2.2% per year that was the average for the 20th century is probably too low. The 20th century had 2 world wars, a Great Depression, and a great many countries mired in communism for most of the century. I don't expect any of those things for the 21st century. (However, if there *is* a World War III, I assume it would be nuclear, and the 21st century will literally be a bloody disaster. My prediction certainly won't be valid if there's a global thermonuclear war in the 21st century.)

Also, in my opinion, any prediction for the 21st century should assume a rising trend for per-capita GDP growth rate. That is, not merely will the per-capita GDP grow, but the *rate of growth* (expressed in percent per year) will actually increase as the 21st century continues. This will have an absolutely mind-boggling effect on per-capita GDP levels, expressed in dollars. That's because even if the rate of growth (expressed in percent per year) is constant, per-capita GDP levels would increase exponentially. But my prediction, in agreement with Arnold Kling, is that the rate of growth, expressed in percent per year, will actually increase. So per-capita GDP will actually increase "double" exponentially.

My thinking that the rate of GDP growth (expressed in percent per year) will increase is in large part based on the analyses of technological trends done by Ray Kurzweil. Some really interesting stuff!

As I wrote above, the fact that the rate of growth will increase has a mind-boggling effect on per-capita GDP levels. I've posted two curves. The first was the predictions for rate of growth, expressed in percent per year, of per-capita GDP. The second curve represents how those values actually translate into worldwide average per-capita GDP. In 2000, the worldwide average per-capita GDP was approximately $6500. By my prediction, the worldwide average per-capita GDP will exceed $100,000 by somewhere around 2070 (only 70 years from now!). The reader may wonder why I limited the scale of the graph to $100,000. Well, at some point (not necessarily $100,000) the whole concept of money becomes irrelevant. People have sooooo much money, that they don't need to work to get any more. To many of us, this doesn't seem possible. But ask yourself, does a multi-millionaire really need to work for more money? Even a 5% per year return on an investment of $5,000,000 is $250,000 per year. That's some serious money. (At least to me!)

So my prediction is for the "end of economics" in the 21st century. Arnold Kling predicts the "end of economics" will come even sooner than I do. Although Wilfred Beckerman and Jesse Ausubel seem to have substantially different predictions, if one were to extend out the curves that are produced by their predictions, both would exceed $100,000 in the 22nd century. Still pretty soon, in the context of human history.

Many thanks to Drs. Kling, Ausubel, and Beckerman for their predictions. I'd love to see any other predictions.

Graph of world GDP/capita in the 21st century

Graph of annual GDP/capita increases in 21st century