Yesterday's Brighter Tomorrow: Evaluating John Maynard Keynes' 100-Year Economic Forecast

Article excerpt

IN 1930, DURING the early grim days of the Great Depression, British economist John Maynard Keynes, considered by many scholars to be the most influential economist of the 20th century, published the futuristic essay, "Economic Possibilities for Our Grandchildren" which expresses an optimistic narrative of economic and social predictions for Europe and North America to be achieved by 2030. Since then, some of his conclusions have proven to be wrong. Two of Keynes' baseline assumptions--no more devastating wars or further increases in population--have gone by the boards. Nonetheless, Keynes was correct in predicting that the West would resume its dazzling economic progress after the lost decade of the 1930s, but it was not until 1936, with the publication of "The General Theory," that he provided the intellectual framework used by Western economists to evaluate economic conditions from 1945-75. By the mid 1970s, Keynesianism had withered under severe attacks.

Keynes and his contemporaries fully were aware by 1930 that they were witnessing an economic crisis far more significant than those that had preceded it. Unlike many economists of this period, Keynes rejected his academic peers' "bad attack of economic pessimism," because he believed that uncertainty had biased their judgment of the potential of capitalism to generate substantial gains in economic welfare. Although national income statistics were rudimentary and economic growth theory had not yet been developed, Keynes boldly predicted that "the economic standards of life in the progressive Western nations one hundred years hence would be between four and eight times as high [as in 1930]" was on target, although perhaps not for all the right reasons.

Keynes' basic conjecture looks to be confirmed--average real income for Americans is about five times more than the 1930 level, although who knows if the next 19 years will undo those gains? Later in "The General Theory," Keynes states that the effects of the Great Depression could be overcome, but that a vigorous recovery would require a "very active and determined policy" by the government to restore a faltering economy. Up until the present day, strong intervention polities by the government have become the defining characteristic of Keynesian macroeconomics in all of its modern variants--traditional Keynesianism, neoclassical Keynesian synthesis, New Keynesianism, and Post Keynesianism.

Living the easy life

Although Keynes' forecast for future income levels appears reasonable, he was far off the mark in predicting future work patterns and how citizens might take advantage of their new-found wealth. By 2030, Keynes believed that his generations' great grandchildren would live in an era of such fabulous opulence that hard work no longer would be necessary. In particular, Keynes gleefully predicted that a 15-hour workweek would be sufficient and that most individuals, relieved from the burden of economic survival, would be free to devote much of their lives to the pursuit of arts and leisure. Despite the exceptional economic gains since 1930, coupled with many remarkable technological advances, nothing could be more different from the blissful future envisioned by Keynes than our modern world of long hours, hard work, and stagnant real incomes. For most Americans, real average hourly earnings stand roughly at 1974 levels, an unexpected departure from the historical experience of more than two centuries of real income advancing hand-in-hand with productivity gains. Moreover, overcoming our current level of economic paralysis likely will prove quite difficult.

Still, Keynes predictions seem remarkable in hindsight. After World War I, economic expansion in England had been minimal, or even negative in some sectors; there was no obvious reason to believe that future economic growth would increase to about two percent per year. Economic growth theory had not yet been formalized, but Keynes grasped some of the fundamentals; however, he believed that future economic growth would occur mostly from capital accumulation, not principally as a result of productivity gains as we know today. …