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Wednesday, August 25, 2010

Why Do Futurists Get So Much Wrong?

The Austrian economist Ludwig Lachmann once walked into the colloquium room at New York University, where the blackboard displayed this quotation: “When it comes to the future, one word says it all: You never know. – Y. Berra.”

Having built much of his economics on the unknowability of the future, Lachmann noticed the quote. However, having lived in South Africa for decades and being unfamiliar with the wit and wisdom of the former New York Yankees catcher, he pondered the chalk inscription for a bit, turned to those assembled, and in his heavy accent said, “I’m afraid I’m not familiar with the works of Professor Berra.”

It is indeed difficult to predict the future, but many folks make a good living trying. From self-proclaimed “futurists” who hope to sell books and DVDs with their predictions about the decades to come, to cartoon visions of the flying-car, meal-in-a-pill, three-hour-workday 21st century so common in the 1950s, to the authors of some of the finest science fiction of the last hundred years—trying to imagine and describe what the future holds keeps a lot of people occupied and makes some wealthy. But how good are the predictions? What is it that makes predicting the future so difficult?

Obviously if we are trying to predict the specific actions of specific individuals, or the price of Apple stock in 2015, the difficulties are clear. I am more interested in bigger and broader predictions. Is there a pattern to the ways people tend to err in predicting how technology will evolve and be used? If such a pattern exists, what might explain it and how could “futurists” learn from that explanation? I think the answer to the first question is yes, and below I attempt to answer the second set of questions.

To do so, we must recognize one important insight about technology, social evolution, and economic growth. It is common for people to attribute the western world’s stunning economic growth over the last 200 years to technology. True, technology does contribute to growth in important ways, although it’s also true that economic growth helps create new technologies by generating capital to fund research. Technology, however, does not create wealth by itself, as decades of technology transfers to the third world demonstrate. For technology to lead to wealth, the right institutions are required. I like to call this the Three I’s approach: Innovation = Invention + (good) Institutions. More specifically, the market must be free enough that technology can be turned from simply an invention into an innovation. Rising wealth requires innovation, and innovation happens when inventions meet the market.

In their excellent book, How the West Grew Rich, Nathan Rosenberg and L. E. Birdzell provide many historical examples to illustrate this point. Consider how many ancient civilizations developed better technology than the West did during the same period. For centuries the Chinese were on the cutting edge of invention and Western Europe lagged behind. But why couldn’t the Chinese translate that invention into increases in wealth and the sort of industrial revolution we later saw in the West? One answer is that the Chinese lacked the West’s decentralized political institutions, which were crucial for nations engaging in wealth-generating trade, which in turn required protection of property rights and enforcement of contracts. The West grew rich because it had the institutions to translate inventions into innovations.

This is the piece of the puzzle so often overlooked when people speculate about the future, particularly the future of technology. By ignoring how technology must interact with markets to generate increasing living standards, futurists tend to get too caught up in the big important technologies and imagine they will be used primarily for the most noble of purposes. It turns out that what seem to really enhance the standard of living and the quality of life for many human beings are things that are far more mundane and commercial than those imagined by many who make a living predicting the future.

Revolutionarily Mundane

Take two examples that were common in mid-twentieth-century visions of the 21st century: flying cars and the meal-in-a-pill. The flying car, of course, was the height of the romantic vision of the technological future. The assumption was that our mastery of flight would link up with the obvious centrality of the car to the emerging suburb-oriented mass culture to give us the ultimate in personal conveyance. What the futurists overlooked was that technology alone won’t do the trick. Inventions have to be profitable to be real innovations. As it turns out, the flying car was, and still is, simply too expensive to produce to be worthwhile for the vast majority of Americans. In addition, the cost of coming up with the equivalent of highways would likely be prohibitive as well.

Instead, the way technology has interacted with the car has been much more mundane. Without question, cars today, despite their inability to fly, are far better than even the best one driven by futurists in mid-century. Blinded by “big technology” and deaf to the importance of economic considerations and marginal adjustments, the futurists failed to imagine terrestrial vehicles with CD/mp3/DVD players, GPS, built-in cell phones, computer-monitored performance, sturdier tires, and enhanced safety devices, not to mention overall quality. Getting 100,000 miles, which used to be one measure of a high-quality car, is now expected. Our lives today have been notably enriched by the incremental improvements in the automobile. Would we be even better off with a flying car? Perhaps, but if one is to predict the future, one has to take both costs and human preferences seriously. Neither has seemed to justify the flying car.

The meal-in-a-pill works in somewhat of the opposite direction. That vision of the future was concerned with abstract notions of technological efficiency and scientific notions of health: Why waste time worrying about food and risking eating the wrong things when you can get all the nutrients you need by swallowing a few pills every day? Of course this overlooked two key factors: Humans enjoy eating in itself—efficiency be damned—and markets would make it possible for more and more people to consume a larger variety of high-quality foods than even the most optimistic of futurists could have imagined.

One need only think of the common food staples of today that were unknown even a generation ago. Having grown up in the middle-class suburbs in the 1970s, I don’t believe I ever saw an avocado in my house or ate sushi until I was well into my adult years. My own kids take foods like this for granted, even growing up in a rural town in New York State, over an hour from any major city. No longer is just “ground beef” acceptable even at the most common of restaurants. We must have high-quality Angus beef, washed down with a coffee drink made with high-quality beans and prepared in a manner that was once consumed only by the upper crust of Americans. (How many Americans knew what a cappuccino was in the 1950s?)

Further consider that, contrary to the spirit of futurism, we can afford to consume food that is produced in less-efficient, more labor-intensive ways through organic farming and the “slow food” movement. These are the indulgences of a rich society where we have put our technology to use not to make the mundane act of eating more efficient, but to open up that mundaneness to the variety of human desires. The proliferation of cooking shows, books, and even whole TV networks, not to mention the fancy kitchens more people can afford, is evidence of how technology meeting the market improves our lives—not by large, dramatic changes but by the accretion of marginal ones that enable us to enjoy the mundane more completely.

Information Supertollbooth

The Internet is another example of this problem. A number of writers foresaw the Internet, and many imagined, romantically again, what a boon to human intelligence, science, and the arts it would be to “have the world’s libraries at your fingertips.” And indeed we have precisely that. What the futurists did not see was how the Internet’s greatest impact would be through commerce. Again, Innovation = Invention + Institutions. Putting the world’s libraries at our fingertips required profitability, and as it turns out, what made the Internet profitable was e-commerce.

Yes, the world’s libraries are at our fingertips, but you need a credit card to buy a book from Amazon. That’s not a bug. It’s a feature. Without the market, there wouldn’t be a way to accomplish the romantic vision of the futurists.

But even there it took years for the vast majority of e-commerce to be profitable. For most of the first decade or so of the World Wide Web, the only profitable business was that most mundane of human activities: sex. Adult websites provided perhaps the only consistently profitable business in cyberspace; they also pioneered many of the technology-meets-commerce innovations that are now part of our everyday web experience. For example, adult sites were among the first to master streaming video and to figure how best to use credit cards securely. They launched a number of the consumer-friendly data-tracking processes that are now standard at places like Futurists saw the technology but overlooked that its biggest impact would come through its combination with commerce, and that this combination would be driven by the demand for sexual content.

Good futurists wouldn’t have overlooked the sexual aspect because almost every other advance in communications technology of the last hundred years has had sexual content at its leading edge. In our own times one need only point to the early success of the VCR, a significant demand for which came from people who wanted to watch adult films in the privacy of their own homes rather than in some dreadful theatre on the wrong side of town. Nude photographs are as old as photography itself, and the same is true of pornographic films. Even as you read this, there is a burgeoning market in 3-D adult films that will surely drive the spread and improvement of that technology. For an invention to enhance wealth and happiness, it must meet up with the market.

If anything, futurists aren’t imaginative enough! The future is always a lot weirder than we think it will be precisely because the spontaneous order of the marketplace will create outcomes that no one can design and that are very hard to predict. Rather than focusing on the big, dramatic technologies and what seem to be their efficiency-enhancing elements, predictors of the future should be thinking more about the everyday things that matter to human beings and trying to imagine how technological change might interact with commerce and culture to produce the weird but still recognizable future.

  • Steven Horwitz was the Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University, where he was also Director of the Institute for the Study of Political Economy. He is the author of Austrian Economics: An Introduction.