BOHANON & CUROTT: Beware of gloomy predictions, economic or otherwise

Economic Analysis by Cecil Bohanon & Nick CurottIn 1974, British historian Arnold Toynbee penned an editorial, “Economic Siege is Coming,” in which he predicted that per capita gross-domestic-product growth in the developed world (United States, Japan and Western Europe) would not only “cease” but was “going to be reversed.”

Toynbee opined that, “while wartime austerity was temporary, future austerity will be perennial and will become progressively more severe.” This grim prediction came from his assertion that economic growth in the developed world had been based on the “unprecedented” depletion of “irreplaceable” natural resources and the exploitation of the non-developed world. Both of these were coming to an end. His evidence: OPEC had tripled the price of crude oil from 1971 to 1973. We were running out of raw material, and the “natives” had learned the art of “exploiting.”

Professor Toynbee, who passed away the next year, did not live to see how wrong his prognostications turned out to be. Adjusting for inflation, per capita GDP in the United States was $26,643 in March 1974. It was $57,541 in March 2019. Adjusted for inflation, oil prices were $64 a barrel in 1974. Since then, the inflation-adjusted price of oil has gyrated wildly between a low of $19 per barrel in 1998 to a high of $116 per barrel in 2011. Today, it stands at around $62 a barrel. Moreover, nobody worries about an imminent depletion of oil. Today, the fear is that oil is so abundant its use will radically increase atmospheric CO2 concentrations.

So where did Toynbee, an educated and intelligent man, go wrong? We think it comes from seeing the world economy as a zero sum-game. In the zero-sum view, there is only so much oil. In reality, the amount of oil is constantly changing as technology opens new sources. A zero-sum view sees economic gains in non-developed countries coming at the expense of developed countries. In reality, expansion of trade between countries allows both developed and non-developed countries to be better off.

In fact, in 1970, 48% of the world’s population—or 1.77 billion people—lived in extreme poverty—or on less than $2 a day in 2019 dollars. By 2015, world population had increased by almost 3 billion people, but the actual number of people living in extreme poverty declined to 733 million, or around 10% of the world’s population.

This is one of the greatest achievements of mankind and something Toynbee would have never predicted. Beware of excessive gloom; it is usually wrong.•

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Bohanon and Curott are professors of economics at Ball State University. Send comments to [email protected]

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