Economists Predict the Next Century

Ten of the world’s leading experts use the tools of economics to forecast the future

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Stephen Cass: Hello, I’m Stephen Cass for IEEE Spectrum’s “Techwise Conversations.”

Getting economists to predict what the world will be like just five years out can be a struggle. And who can blame them? In 2009, who would have foretold the Arab Spring, Crimea sparking the threat of a second Cold War, or that Apple would sell over 170 million iPads?

So my hat is off to Ignacio Palacios-Huerta, a professor in the department of management at the London School of Economics. He’s the editor of the recently published collection In 100 Years: Leading Economists Predict the Future. Contributors include Nobel Prize winners Robert Shiller, Alvin Roth, and Robert Solow. Topics covered include the future of work, political and religious extremism, the progress of human rights, climate change, and the impact of technologies such as automation.

Professor Palacios-Huerta joins us now by phone from his home in Madrid. Ignacio, welcome to the podcast.

Ignacio Palacios-Huerta: Okay, thank you very much for having me.

Stephen Cass: So what inspired you to invite 10 outstanding economists to predict conditions a century from now, and how did you get them to agree?

Ignacio Palacios-Huerta: Okay, so it’s very, very simple. We are currently not very good at understanding the production function of creativity. For various reasons I was thinking about the future. One of the reasons was that I had twins. When you have a baby, you start thinking about the future in a different way. I understand that this is not 100 years, but this is something along that direction, maybe 20, 50 years for them, et cetera.

Second, when you are in your 40s and 50s, you start, some of us, in these midlife crises, I guess. And finally, and also very important, I came across an essay by John Maynard Keynes in 1930, where he attempted to predict the world in 2030, and I found his essay fascinating. In this, Keynes missed a few things, but got right a number of other things. So I view the contributions of these three items, so to speak, they are in my mind: How does Ignacio Palacios-Huerta think the world might look in 100 years?

Then after you start thinking about this, then you can’t stop thinking about it. And we economists, some of us like very difficult questions, and especially unusual questions. So it was a combination, I think, of unusual and difficult that installed the question in my mind. After a while, I was thinking, Wow, if there was a book by people that I like, that I know and I admire, where each of these people would do the exercise that Keynes did, which is to try to predict the world in 100 years, I would stop immediately and I would read that book immediately, because it would be fantastic to read what these great scientists must think about this question.

Stephen Cass: When we often think about the far future, we often think of science fiction. Why did you think that economists might be able to equal, or even outdo, science fiction writers?

Ignacio Palacios-Huerta: Well, first, I’m an economist, so I’m very biased. I don’t think that I’m biased, but there’s a chance I might be biased. So in my experience, the discipline of economics is capable of huge insight into human behavior, into political organization, into public policy. At the end of the day, economics is not more than simple logic applied to any areas. And as I said, it’s a very sad day that Gary Becker just died recently, but I think he was one of the, if not the, leading economists to push the economic approach to human behavior, and as I said, we use the language of logic, which is mathematics, and data to try to understand the world around us.

And I have the greatest admiration for these economists. All the other sciences, of course, might have the right ingredients and are asking very important questions, but I think it’s very hard to match the insights that we might get into human behavior from an economist. And, of course, these are the very people that I know. So this is why I asked my fellow colleagues.

Stephen Cass: So just staying on science fiction briefly, science fiction stories are often allegories for specific concerns the writer has about the present day. Should we view the essays in 100 Years in the same light?

Ignacio Palacios-Huerta: There are some issues, some themes, that they all touch upon, and there are others that vary. For instance, the essay by Martin Weitzman has to do with environmental economics. The essay by [Daron] Acemoglu—they are mostly unrelated. There’s a theme, though, that they all touch upon, which is climate change. So global warming really is the only theme that all these 10 essays grapple with.

Stephen Cass: In 100 Years, Avinash K. Dixit cites Mancur Olson’s observation that reforms in institutions often come about after a war or some other crisis has dissolved the previously entrenched coalitions, destroyed the power of special interests. Some of the crises may refer to the economic and social changes that technology brings. How is technological upheaval like war?

Ignacio Palacios-Huerta: Well, that’s a very good question. I think technological development is like war in the following sense, or has some similarities: Say, war, a war destroyed capital, physical and human capital. And technology also destroys human capital. For instance, the new technologies are destroying unskilled labor. Take a look at the country where I am now, in Spain. There’s a whole generation of people that because of the booms in construction, invested heavily in human capital, and this 25 percent unemployment in some southern European countries is destroying the value of this unskilled capital. And that’s, I think, a technological development, because it destroys or changes the returns to those types of capital it’s like war. War destroys physical and human capital, and technological developments do the same. Of course, without anybody dying.

Stephen Cass: So having edited this collection, at the end of the day, are you a pessimist or an optimist about the future?

Ignacio Palacios-Huerta: Well, I was not very surprised about what my fellow colleagues discussed. I think at the end of the day I am cautiously optimistic about the next 100 years. I was already cautiously optimistic before reading the essays by these people, and I think what they have to say reinforced my view, that one should be cautiously optimistic, whatever that means. But that’s the sense that I get after reading the essays.

Stephen Cass: Well, Ignacio, thanks so much for joining us today.

Ignacio Palacios-Huerta: Okay, my pleasure. Thank you very much for having me.

Stephen Cass: We’ve been speaking with Ignacio Palacios-Huerta about his book In 100 Years: Leading Economists Predict the Future. For IEEE Spectrum’s “Techwise Conversations,” I’m Stephen Cass.

This interview was recorded Monday, 5 May 2014.

Audio engineer: Francesco Ferorelli

Segment producer: Barbara Finkelstein

Photo: The MIT Press

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