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.

Comments

[jb]

Actually, this meshes quite well with the expectations that the development of thinking-assistant machines will allow us to become smarter (which will, in turn, allow us to produce even better thinking-assistant machines, etc, etc)

This is called in Sci-Fi (and even in real science discussions) the "Singularity" - the point at which all expectations about the future are rendered moot.

If we hit the Singularity in the next 30-70 years, I would expect that $20MM average per-capita GDP would seem quite reasonable.

[Eyvind Hillblom]

Pulease! Don't take it personal but this is pure nonsense.

The problem with your thinking is not the average growth numbers but the underlying growth model. You assume that GDP grows exponentially (on average) and there is absolutely no ground for that.

It may well be that the "economic literature" makes the same assumption but even so, it is an unfounded ad hoc model. And therefore useless.

The prediction is as useful as Nostradamus' ;)