Our thinking is stuck in the short term
When thinking about the future, we don't normally think and plan in 30, 50 or 100-year time-frames. Because none of us even know what's going to happen next week, we feel like it's impossible to plan on longer timescales. But in fact, important things about the future on a longer timescale can be very predictable indeed.
What economy will our grandchildren inherit?
In 1930, the economist Keynes, published an article called The Economic Possibilities for our Grandchildren. (Many thanks to Maxine's cousin Matthew for referring us to this!) In this article, Keynes tries to imagine the world one hundred years after 1930 - ie in 2030. He predicts 2% average economic growth and comes to the conclusion that the economy will be 7.5 times bigger. He marvels at the idea of a society with 7.5 times as much stuff; healthcare; housing; food and other unimaginable resources.
We tried to validate his numbers at the National Office of Statistics. We found a data-set from 1955 up until today. Decades short of Keynes's hundred-year-period, right? In this data set, GDP, which is the measurement of the size of a country's economy, grew 4 times larger.
So Keynes' prediction was basically correct. The economy as a whole grew several times over. And that is not withstanding the fact that Keynes' 100 year time period included the Great Depression, 9/11, the Credit Crunch and the Second World War. That's the remarkable power of compound growth over a long period of time, even at 2% per year.
Use Greenspan's span, invest long-term like Buffet and be future-savvy like Bezos
Alan Greenspan - former chairman of the US Federal Reserve - actually makes a very similar argument. In his 2008 book The Age of Turbulence he predicts 30 years ahead and says that the US economy will be 70% larger.
Warren Buffet, the word's most successful investor, bases his whole strategy on the long-term predictability of economic growth. In 2018 he is the 3rd wealthiest person in the world and also in his late eighties - two facts that are not unlinked. The long-term compounding of his strategy has trumped all the short-term guys in the market.
Jeff Bezos of Amazon said that in thinking about his business, he didn't think about what would change, he thought about what would not change. And he couldn't conceive of any way that customers in the future wouldn't want the lowest possible prices for the fastest possible delivery. Bezos organised his whole business around delivering these two concepts consistently over a long period of time. Recently, he was interviewed about the future of space and his venture Blue Origin. In this case, Bezos predicted two hundred years into the future!
Given that the two richest men in the world attribute their success to this sort of long term thinking, it seems to us a useful looking glass through which to predict that the economy will be much bigger than today in the robot age.
NEXT POST (June 19, 2018): How much bigger will the economy get? And how will that affect jobs?