A Brief History of Economic Time

Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention of agriculture -- but none of that stuff had much effect on the quality of people's lives. Almost everyone lived on the modern equivalent of $400 to $600 a year, just above the subsistence level. True, there were always tiny aristocracies who lived far better, but numerically they were quite insignificant.

Then -- just a couple of hundred years ago, maybe 10 generations -- people started getting richer. And richer and richer still. Per capita income, at least in the West, began to grow at the unprecedented rate of about three quarters of a percent per year. A couple of decades later, the same thing was happening around the world.

Then it got even better. By the 20th century, per capita real incomes, that is, incomes adjusted for inflation, were growing at 1.5% per year, on average, and for the past half century they've been growing at about 2.3%.

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[5 more paragraphs telling us how the economy and prosperity today is great]

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The source of this wealth -- the engine of prosperity -- is ...

Let me interrupt here briefly. You might expect a mention of oil, or coal, or energy more generally, right?

In the WSJ? Nah.

...technological progress. And the engine of technological progress is ideas -- not just the ideas from engineering laboratories, but also ideas like new methods of crop rotation, or just-in-time inventory management.

(...)

Which contribution is more important? By one rough measure -- the profits earned by the innovator -- they're about equal. In the late 1980s, Microsoft earned economic profits of about $600 million a year, while Michael Milken, the inventor of the junk bond, earned an annual income that was just about the same.

Some good ideas even come from economists. Julian Simon came up with the idea of bribing airline passengers to give up their seats on overbooked flights -- and gone were the days when you relied on the luck of the draw to make it to your daughter's wedding. Economists first suggested creating property rights in African elephants, a policy that has given villagers an incentive to harvest at a sustainable rate and drive the poachers away. The result? Villagers have prospered and the elephant population has soared.

Engineers figure out how to harness the power of technology; economists figure out how to harness the power of incentives. Our prosperity relies on both.

Microsoft and Milken. Technology and economists. There you go. The economists that invented infinite growth in a finite resource system. And defy the second law of thermodynamics.

Yippee.

Wealth capture still has a future.

In the long run, we're all dead. John Maynard Keynes