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Pessimistic Bias: Economists Suffer Too

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I've been carping on the public's pessimistic bias for quite a while. Now Robert Fogel persuasively argues that even economists suffer from it:

At the close of World War II, there were wide-ranging debates about the future of economic developments. Historical experience has since shown that these forecasts were uniformly too pessimistic. Expectations for the American economy focused on the likelihood of secular stagnation; this topic continued to be debated throughout the post-World War II expansion. Concerns raised during the late 1960s and early 1970s about rapid population growth smothering the potential for economic growth in less developed countries were contradicted when during the mid- and late-1970s, fertility rates in third world countries began to decline very rapidly. Predictions that food production would not be able to keep up with population growth have also been proven wrong, as between 1961 and 2000 calories per capita worldwide have increased by 24 percent, despite the doubling of the global population. The extraordinary economic growth in Southeast and East Asia had also been unforeseen by economists.

Fogel closes with an homage to Kuznets:

One of the points he made was that if you wanted to find accurate forecasts of the past, don’t look at what the economists said. The economists in 1850 wrote that the progress of the last decade had been so great that it could not possibly continue. And economists at the end of the nineteenth century wrote that the progress of the last half century has been so great that it could not possibly continue during the twentieth century. He said you would come closest to an accurate forecast if you read the writers of science fiction.

Could it be that Robin Hanson's craziest paper will one day be vindicated?


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TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/570
The author at Asymmetrical Information in a related article titled It's not all bad news, you know writes:
    Bryan Caplan says economists are too pessimistic. [Insert mandatory joke about economists predicting "9 of hte last 5 recessions] here.] But Brad Delong's found at least one silver lining on the gathering clouds: Just after New York Fed President Tim G... [Tracked on September 26, 2006 1:38 PM]
COMMENTS (7 to date)
chris dillow writes:

This raises fascinating questions. Why has technical progress beaten diminishing returns? Traditionally, economists' pessimism - especially that of the classics - has been founded on the view that it wouldn't always do so.
Are diminishing returns really unimportant? If so, why do so many small businesses still survive and thrive?
Must technical progress really continue? Do network effects - the more we know the more we learn - really give us cause for optimism? Or is it just induction (and we know what Hume said about that) that gives us confidence that it will do so?

Curt Gardner writes:

The Hanson paper looks a lot like SciFi writer Vernor Vinge's idea of the Singularity (1993: http://mindstalk.net/vinge/vinge-sing.html)(more recently taken up by Ray Kurzweil).

Tim Lundeen writes:

Yes, Kurzwiel makes a similar case in his book The Singularity is Near. Highly recommended.

jb writes:

Actually to some degree, we've already started down the path of diminishing returns in computer chips - the new chips aren't much faster than the old ones, they're just able to pack more of them on a single wafer. So instead of a superfast maserati that can go 500 mph, you get two ferraris that can go 400 mph. If you're doing two things at once, you're good, but if you try to race against the maserati, you're going to lose.

Now, why we haven't hit many of the other limits is primarily because our software is really good at reducing waste and optimizing solutions to make them cheaper and better. Including (of course) building the hardware that the software runs on. It's an example of a "singularity-like" system, and one of the reasons I'm optimistic about the future.

Bruce G Charlton writes:

Fascinating stuff - but I can't get hold of the full paper. Does anyone know the suggested reason(s) _why_ the predictions are so pessimistic compared with reality.

At root, maybe it is because instincts are such a poor guide to reality in the modern world - and in general modernity is potentially (for some people, but especially intellectuals - it seems) so _alienating_ that we assume that something terrible is wrong to make us feel so strange.

Tom writes:

"why_ the predictions are so pessimistic compared with reality."

A pessimist prepares for the downfalls in the future and survives them better. The predictions may be realistic at the time, but preparation makes the outcome better.

ryan writes:

I'm never sure if I quite understand Hanson's paper, so forgive me if I seem overly dense. Hanson is essentially modeling "just" world product, and it doesn't absolutely and definitely follow that world product makes people happier, right? I mean, his second transition, to farming, definitely increased world product, but essentially by making massive numbers of really miserable people, relative to their hunter-gatherer forbears; this happiness dropped was not really made up until rather recently.

This raises two questions for me: (1) if we do make the next transition soon, does it follow that we'll be happier? and (2) is there some conceivable way of constructing a even sort-of sensible many-generational discount rate whereby you could even begin to discuss whether a shift in modes of growth that produced much higher growth but a long period of depressed human happiness could be called either good or bad?

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