Pessimism Amid Plenty

Michael Spence

MILAN – A few years ago, I wrote a book called The Next Convergence, about how developing economies were “catching up” to their advanced counterparts in terms of income, wealth, health, and other measures of wellbeing. I looked not just at how these countries had achieved rapid growth – including the central role played by an open global economy – but also at the opportunities and challenges this process of convergence would bring.

In writing the book, I had planned to include a lot of data in visual form. But a respected literary agent told me that using graphs was a bad idea, because only a small share of people absorb quantitative information better when it is presented visually. I came to realize that graphs are, in a sense, answers to questions. If you don’t pose a question, a graph is somewhere between uninteresting and meaningless.1

Recently, the Harvard University psychologist Steven Pinker published a book documenting long-term positive trends in multiple dimensions of wellbeing, which he calls “the fruits of the Enlightenment.” Progress is not, Pinker acknowledges, consistent; there have been significant setbacks as new challenges, such as climate change, have emerged. But, generally, wellbeing has been improving since at least the mid-eighteenth century, with the Industrial Revolution bringing a sharp acceleration in welfare gains. Since World War II, 85% of the world’s population living in developing countries have benefited as well.

Yet, while Pinker uses many graphs to demonstrate this progress, most people seem not to perceive it, or at least to discount it relative to immediate problems and worries. Why?

A host of factors contributes to the divergence between data and perception, beginning with people’s innate biases. One such bias is the “optimism gap”: people tend to be more optimistic about their own circumstances than they are about those of others, or of society in general. Another is what the Nobel laureate Daniel Kahneman and his long-time collaborator, the psychologist Amos Tversky, refer to as the “availability heuristic”: people estimate the frequency of events by the ease with which examples come to mind.

When it comes to assessing economic and social trends, both biases are shaped by the news cycle. Pinker cites data indicating that the share of negative news stories has trended upward in the post-war period. Since the advent of digital and social media, the news cycle has been shortened to minutes, encouraging a continuous flow of imprecise, sensational, false, or deeply biased content. Negative news tends to sell better, perhaps because of a built-in negativity bias. It doesn’t help that on social media, users can “self-select” the type of content to which they are exposed, potentially reinforcing their existing biases.

Uncertainty, too, can fuel a more pessimistic assessment of trends. And there is no shortage of uncertainty in the world today.1

In developed countries, globalization and automation have already produced significant shifts in labor markets and income distribution. The continuing takeover of economic activity by artificial intelligence and robotics is likely to sustain and even accelerate these trends. Such global economic and technological forces are widely viewed as beyond the control of countries’ governance structures, raising doubts about the efficacy of policy responses.

Similarly, climate change is beyond the capacity of any country to address alone, and there are serious questions about whether the global community’s response is even close to aggressive enough to stave off disaster. The apparent crumbling of the post-war global order – and the lack of a clear idea as to what will replace it – compounds concerns about the efficacy of international cooperation.

It is also true that aggregate economic data can and do obscure more localized problems. While the benefits of globalization have been enormous, they have been unevenly spread. Many regional and local economies have been rocked by job losses and the decline of entire industrial sectors – developments that have contributed to rising inequality.

The danger of ignoring the distributional aspects of growth patterns has lately come to the fore, as widening inequality has emerged as a key contributor to negative attitudes about economic and social progress. Pinker and others rightly point out that rising inequality does not imply absolute losses for subgroups, unless overall income growth is flat.

But while extreme inequality and poverty are unacceptable in most societies, some disparities of income and wealth are widely viewed as a tolerable, even inevitable, corollary of a market economy, though the specific level of inequality that is considered appropriate varies across countries. The real issue, then, becomes perceived fairness in a particular society – a hard indicator to quantify. Meritocracy, transparency, and constraints on the extremes seem to be the most salient dimensions of that question.

To some extent, societies’ perceptions of economic trends – whether positive or negative – comes down to policy responses. When policymakers ignore losses in particular regions or sectors, the result is anger and social division – and negative views about the economy’s trajectory. When policymakers provide adequate protection to their citizens, those views may be more likely to skew positively.

This point was driven home in a recent New York Times article, which cited a European Commission survey indicating that 80% of Swedes “express positive views about robots and artificial intelligence.” On the other hand, “a survey by the Pew Research Center found that 72% of Americans were ‘worried’ about a future in which robots and computers substitute for humans.”

Swedes broadly view technology as essential to foster competitiveness, fuel productivity growth, and thus expand surpluses that will be distributed among workers, management, and owners according to shared values, or used to help adapt worker skills. And there is a comprehensive – and admittedly expensive – social-security system to support people in transition. In the US, pessimistic views of major economic trends may be fueled partly by a lack of adequate policy responses and less robust social-safety nets. Attitudes toward globalization and digital technology also tend to be more positive in high-growth developing countries like India and China, where progress is highly visible and digital technologies look more like growth engines than threats.

While there is no shortage of challenges facing economies and societies today, they should not be allowed to obscure positive long-term trends. The best remedies for “undue” and potentially debilitating pessimism are practical: effective fact-based policymaking, shaped by scientific inquiry and social solidarity.

Michael Spence, a Nobel laureate in economics, is Professor of Economics at NYU’s Stern School of Business, Distinguished Visiting Fellow at the Council on Foreign Relations, Senior Fellow at the Hoover Institution at Stanford University, Advisory Board Co-Chair of the Asia Global Institute in Hong Kong, and Chair of the World Economic Forum Global Agenda Council on New Growth Models. He was the chairman of the independent Commission on Growth and Development, an international body that from 2006-2010 analyzed opportunities for global economic growth, and is the author of The Next Convergence – The Future of Economic Growth in a Multispeed World.

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