Economics: No Longer the 'Dismal Science'

Alex Tabarrok is optimistic about the future:

People used to think that more population was bad for growth. In this view, people are stomachs--they eat, leaving less for everyone else. But once we realize the importance of ideas in the economy, people become brains--they innovate, creating more for everyone else.

New ideas mean more growth, and even small changes in economic growth rates produce large economic and social benefits. At current income levels, with an inflation-adjusted growth rate of 3% per year, America's real per capita gross domestic product would exceed $1 million per year in just over 100 years, more than 22 times higher than it is today. Growth like that could solve many problems.

In the 20th century, two world wars diverted the energy of two generations from production to destruction. When the horrors ended, the world was left hobbled and split. Communism isolated much of the world, reducing trade in goods and ideas--to everyone's detriment. World poverty meant that the U.S. and a few other countries shouldered the burdens of advancing knowledge nearly alone.

The battles of the 20th century were not fought in vain. Trade, development and the free flow of people and ideas are uniting all of humanity, maximizing the incentives and the means to produce new ideas. This gives us reason to be highly optimistic about the future.

Of course, Tabarrok is a libertarian, and libertarians are born optimists w/r/t the potential of mankind. It is still true that we don't understand very well how development occurs, or how to maximize growth across the board. China and India are growing very fast, but it isn't without side effects. Still, the overall trajectory of the world in the 21st century is better -- so far -- than the trajectory of the 20th. There are good reasons for optimism.