Alex Tabarrok: "Reason to be Highly Optimistic about the Future"

Don't worry, things are going to turn out great:

Dismal Science Sees Upbeat Future, Alexander Tabarrok, Forbes: Forget the talk of recession. The world is about to enter a new era in which miracle drugs will conquer cancer and other killer diseases and technological and scientific advances will trigger unprecedented economic growth and global prosperity.

Pie in the sky optimism? Perhaps. But there are reasons to be optimistic, and they rest ... within the badly misnamed "dismal science," economics.

To understand why economics triggers such optimism, imagine that there are two deadly diseases. One disease is relatively rare, the other common. ... If you don't want to die, it's much better to have the common disease. ... The cost of developing drugs for rare and common diseases are about the same, but the revenues aren't ... larger markets mean more profits.

As a result, there are more drugs to treat diseases with a lot of patients than to treat rare diseases, and more drugs means greater life expectancy. Patients diagnosed with rare diseases ... are 45% more likely to die before age 55 than are patients diagnosed with more common diseases. So imagine this: If China and India were as wealthy as the U.S., the market for cancer drugs would be eight times larger than it is today. ...

Like pharmaceuticals, new computer chips, software and chemicals also require large research and development (R&D) expenditures. As India, China and other countries become wealthier, companies will increase their worldwide R&D investments. Most importantly, as markets expand, companies and countries will put to work the greatest asset of all for the betterment of mankind: brain power.

Amazingly, there are only about 6 million scientists and engineers in the entire world, nearly a quarter of whom are in the U.S. ... But if the world as a whole were as wealthy as the U.S..., there would be more than five times as many scientists and engineers worldwide.

People used to think that more population was bad for growth. In this view, people are stomachs--they eat, leaving less for everyone else. But once we realize the importance of ideas in the economy, people become brains--they innovate, creating more for everyone else. New ideas mean more growth, and even small changes in economic growth rates produce large economic and social benefits. ...

In the 20th century, two world wars diverted the energy of two generations from production to destruction. ... Communism isolated much of the world, reducing trade in goods and ideas--to everyone's detriment. World poverty meant that the U.S. and a few other countries shouldered the burdens of advancing knowledge nearly alone.

The battles of the 20th century were not fought in vain. Trade, development and the free flow of people and ideas are uniting all of humanity, maximizing the incentives and the means to produce new ideas. This gives us reason to be highly optimistic about the future.