Just Innovate and Build

Do you know what the world economy will look like in 2075? No? I don't either, but Goldman Sachs thinks they do. The highlights include a prediction that the five largest economies will be China, the US, India, Indonesia and Germany and that in 2050, China will have a real GDP of $41.9 trillion, the US $37.2 trillion, India $22.2 trillion, whilst the rest are miles behind. There’s also an estimate that emerging markets will account for a larger share of global market capitalisation. There’s nothing outrageously barbarous there, granted, but I am sceptical. 

The fact that economics has a branch called “nowcasting” and that revisions of current economic indicators are a “fact of statistical life” should tell you all you need to know about precise predictions for the world economy in 2075. The Goldman Sachs econometricians should speak to the Goldman Sachs macroeconomists and ask them about economic shocks. Then, they should speak to the Goldman Sachs technology advisory team and ask them about technology.

You see, I get very bored with reports like this. It’s like those future concept cars. You get the feeling they’re made just to give someone something to do. 

And I say this as someone who studied, loves and still has a passion for economics and econometrics. I’m someone who thinks economics thinking is critical. This isn’t “an economy can’t be viewed on a spreadsheet” perspective either because it can. It literally can. The economy can be viewed on a spreadsheet.

But let me tell you why I think these reports are worthless. Firstly, predicting the future is hard, especially when it comes to (macro)economics, where it is often futile. No one, absolutely no one, is going to bother looking back and seeing if the prediction turned out to be correct. In fact, in 51 years time, there’s a high chance that most of the people involved in the report are going to be dead. 51 years ago was 1973. I guarantee no one, absolutely no one, is looking at predictions made in 1973 about 2024. And even if someone is, no one, absolutely no one, predicted those five decades. So it’s pointless.

Secondly, all a farmer wants to do is to make his farm more productive. All a captain wants to do is ship more containers. All a factory owner wants to do is to produce more products at a cheaper cost. All the Chief Revenue Officer wants to do is sell more. All a DJ wants to do is get more streams on Spotify. To them, 2075 predictions matter diddly squat. So it’s useless as well.

It’s not that the future isn’t important - it really, really is. If I’m a business owner, I have to plan for the future. You can’t just get up and think, “what shall I try my hand at today? I know, I’ll run a social media site.” Oh. You have to plan costs, headcount, inventory and investment. And that is hard. Ask any business, and they’ll tell you it’s hard, even the ones who have demand forecasting down to a tee. 

You never know what is going to happen. 

Global supply chains worked until somebody in Yemen got upset and started firing rockets at ships. Everyone was drunk on easy money until the music stopped in the Global Financial Crisis. Enron was the most innovative company in the world until Bethany McLean realised it was all a fraud. On the 22nd of June 2016, the BBC assured me that we would remain in the EU, and we did until the very next day when we didn’t. The people with the Doomsday Clock have said the world will end for the last 75 years. It hasn’t.

Even very good businesses, those that make good products, command high market share and make good profits, can make big mistakes. Zuck spent north of $20 billion on the metaverse and renamed his company around it. It was DOA. 

Airbus, in 1990, launched the development of an ultra-high-capacity airliner, which came to be the A380. They commissioned market research to support the building of this huge, 600-seat behemoth. It said that demand for ultra-high-capacity planes was there. And yet, despite being an engineering marvel - one of the world’s greatest - the A380 has been a commercial disaster. With only 251 orders and a loss made on each plane sold, it was a $25 billion development that didn’t deliver, and in 2021, the last A380 rolled off the production line.

So, if even the futurists and those involved with the creation of new technology find it hard to predict what will happen whilst they are trying to make it happen, then what hope does a report from an investment bank have? I read Chip War for my last article (go read it), and what’s remarkable is that even the people who were focused on increasing the number of transistors on an integrated circuit and who foresaw electronics as becoming increasingly important never saw the extent to which it would become important, and how long Moore’s Law would continue to hold.

No one predicted that the next big company would be started by a bunch of students in a Harvard dorm room. No one predicted that the 17th search engine would be the biggest IPO in years. No one predicted that the guy who couldn’t get a job at KFC would create one of China’s biggest - and best - companies. In 1996, no one predicted that Apple, near bankruptcy, would be saved by Steve Jobs and become America’s most valuable company for most of the 2010s.

We don’t know what the next 51 years will hold. The next three to five years is probably the best you can do. Even over this shortened time scale, the best in the business, such as UK statisticians, struggle.

And it’s their job! However, at least the OBR are upfront about this: “a single point forecast of an outcome … has virtually no chance of being correct. Economies are subject to unexpected shocks…” At least the fine folk at the OBR are required to assess the accuracy of their forecasts at least once a year. And the OBR are onto something when they say that they should make use of data sources which provide high-frequency, real-time data. I’ve often thought that economic surveys are a tad quaint and misplaced in 2024.

So, we’ve learned today that Goldman Sachs’s 51-year view isn’t worth listening to. There’s value in direction, but you simply cannot be too precise when looking to the future. Over the next five decades, I know this much: technological advancement allows us to produce the same output with fewer resources, so we need technological advancement. There will be technology breakthroughs that will see innovators launch new products, build new companies, and create new markets. There is no need to worry about the next 50-year projection and don’t waste your time reading it. Just innovate and build.