Welcome to the Future, Why I am an Optimist

Introduction:

There is a tendency to talk about "the good old days" and to talk about how much better things were "back then." However, our view of such things tends to be nostalgic, and more than a little skewed. We think that "back then, there wasn't so much violence" or "back then the economy worked" or "back then our people still had a moral compas." The truth of the matter may be very different from what we think.

Optimism, Economic:

A little while ago, I posted a chart I had created on the US GDP to facebook. I created this chart because I was curious about how the current recession had affected the US GDP. This is what I came up with:

My Per Capita, inflation adjusted GDP graph.

What I was most interested in, was the way that mechanization and computerization had allowed our work to be increasingly more productive. Thus, I divided the GDP numbers by the US population each year, producing a per/capita inflation adjusted GDP. For the same amount of labor, we were now producing substantially more wealth, and this was a trend that our current recession had barely put a dent in. Of course, all that assumes that GDP is a good measure of "productivity."

However, as a friend of mine pointed out, GDP is often not a good measure of "productivity." He cited the following article by John Mauldin. This was a very interesting read. John advocates the use of a "private sector" only GDP, as well as what he calls a "Structural" GDP, which is a measure of the GOP that does not arize from deficit spending.

Consumption is not prosperity. The credit-addicted family measures its success by how much it is able to spend, applauding any new source of credit, regardless of the family income or ability to repay. The credit-addicted family enjoys a rising “family GDP”—consumption—as long as they can find new lenders, and suffers a family “recession” when they prudently cut up their credit cards.

In much the same way, the current definition of GDP causes us to ignore the fact that we are mortgaging our future to feed current consumption. Worse, like the creditaddicted family, we can consciously game our GDP and GDP growth rates—our consumption and consumption growth—at any levels our creditors will permit!

I disagree with his focus on "private sector GDP" (because the government can produce services and products too), but applaud his use of what he calls "structural GDP" which is the GDP minus the GDP that comes from deficit spending. In that domain, our current recession has cost us about 15 or so years of "progress."

John Mauldin's GDP graph, http://www.johnmauldin.com/images/uploads/pdf/mwo050911.pdf

Yet even this bleak view of our current recession, with the recession costing us about 15 years of "progress" in structural GDP, admits that there IS progress. His real, inflation adjusted, per capita structural GDP has been going up, and up, and up since 1944, with a minor hiccup that is our recession. I really wish that he had taken his graphs back further in time so that we could see the "great" depression and compare it to today's recession, but he did not. You can however, see the great depression in my graph, although not in "structural" GDP terms. It would appear that our current problems are actually quite minor when taken into the grand scheme of things. I am sure that provides little solace for a family out of work and struggling to get by, but it should privide hope that this won't last forever, and that things will eventually get better.

In any event, progress has been made, and there is every reason to believe that more progress will be made in the long term. Today, we live substantially better than our parents, even if we live slightly worse than we did 10 years ago. And we live a LOT better than our grandparents did.

In fact, I am not entirely convinced that we actually do live worse than we did 10 years ago, despite the "structural GDP" figures. Our structural GDP may have dipped, but think about this: Compare your access to information with your access 10 years ago, with the internet, cell phones, dish TV, Wikipedia, etc. Look at your access to advanced software. Look at your access to entertainment. 10 years ago your car didn't have a DVD player in the back, you didn't have a vast collection of DVD's, and Blue Ray disks with HD TV's didn't exist. 10 years ago you played Star Craft I instead of Star Craft II. Your digital camera today is VASTLY superior to the one you likely owned 10 years ago, and it was substantially cheaper despite inflation!

And if we go further back, your great-grandfather's car was a horse.... you get the picture.

John pointed out how GDP can over estimate how well we are doing by pretending that deficit spending is real. But GDP can also vastly under estimate our current standard of living, because it can ignore the depreciation of goods and services, especially in the computing and electronic markets.

Computing power/$ doubles about every year, which means that every dollar of that GDP buys twice as much computing power each year (and is therefore twice as valuable). That affects our standard of living from the gadget perspective, and since gadgets are in more and more of our products, it affects more and more of our lives, from entertainment to healthcare. This process will only accelerate, as gadgets are found in more and more places, from our sun glasses to our clothes, and eventually within our own bodies.

Similar "depreciations" have happened in the communication domain. Compare mail to e-mail. Compare e-mail with video chat. Our ability to connect with each other, to share ideas, and to stay in touch has improved by vast orders of magnitude over just the last few years.

Similar "depreciations" have happened in some of the materials markets. Yes, many raw materials have gone up in price drastically. But at the same time we have been developing new materials, (carbon fiber anyone?) stronger, lighter, and cheaper than the materials we used before. Again, there is no reason to assume that this trend will not continue.

Industrialization, automation, and mechanization have cost us some jobs. But they have also created many jobs, and these new jobs produce more goods and services for less. Real wealth and standard of living is found in the consumption of such good and services. The cheaper they get, the more we can consume, and the higher our standard of living. Again, this is a case where GDP can under-estimate our prosperity.

More improvements have been made in health care. Although again we still have a long way to go, miracles are happening right before our eyes each and every day. The blind see, the deaf hear, the lame walk, more and more of those with cancer survive. There has never been a better time to live.

Optimism, Violence:

In the last few years, there have been quite a few wars. Violence appears to be everywhere. The Middle East is exploding, and the US is currently involved in THREE separate conflicts in the Middle East at the same time. As if this isn't enough, there are numerous conflicts in South America, and Africa. Many of them appear to be right on the edge of exploding. The world certainly seems to be quite the violent place.

Yet we must ask ourselves, is this perception of increased violence accurate? Certainly there is some serious violence going on, and we shouldn't downplay this fact. There is much that we can (and should) do to make the world a better (and less violent) place. But the simple fact of the matter is that "In fact, our ancestors were far more violent than we are, violence has been in decline for long stretches of time, and that today, we are probably living in the most peaceful time in our species existence." (By the way, I HIGHLY recommend watching this talk, it will change your view of everything). This same talk addresses issues such as homicide and crime, which also appear to be improving drastically.

Mis:

The potential for the use of nuclear weapons has unfortunately increased with the fall of the Soviet Union. Nuclear weapons have spread to many smaller, third world countries, and the potential that nuclear weapons might get into the hands of a terrorist who would use them has unfortunately gone up. As frightening as this prospect is, the world is actually much safer from complete nuclear annihilation today than it was 20 or 30 years ago. Although the potential for an isolated use of an atomic weapon has increased, the potential for a large, world wide distruction (Mutually Assured Destruction, or MAD) has dropped dramatically since the fall of the Soviet Union.

Who would have thought in the 80's that the Soviet Union was about to fall, and who would have thought in 2009 that Democratic reforms and revolutions were about to spread across the Middle East. Around the world, governments are becoming more democratic, human rights are improving (although we still have a long way to go), and world poverty levels are dropping.

Let Freedom Ring.

The civil rights movements have changed our perceptions of racism for ever. African apartheid has fallen. Women's rights movements have done much to improve gender inequalities. In just a short few hundred years we went from a situation where blacks were slaves and women could not vote, to the point where our greatest arguments about "equal rights" seem to be about defining marriage. The very fact that this is an issue at all, indicates just how far we have come. Who would have thought just 20 years ago that today we would have a black president. Regardless of what you think about the job that he is doing, the very fact that we have such a man as president gives some impression of just how far we have come.

Conclusions:

There appear to be a LOT of reasons to be optimistic about the future. I think I will let Brad Paisley summ things up for me:

http://www.youtube.com/watch?v=Y0Yg9wjctRw&feature Welcome to the future everyone.

(I continue these thoughts here).