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Like any field, economics is subject to fads. After this great recession, the new fad is pessimism.

The prophet of pessimism is Tyler Cowen[i], who seems to think that this country is running out of “low-hanging fruit,” available land, uneducated people and new ideas. New ideas don’t seem to spur the formation of companies like the old General Motors, which once employed 600,000 people. Facebook serves 500 million customers with a staff of 2,000.

A friend of mine has concluded that our bloated health sector is in reality a “jobs program” for every kind of health professional that would not be able to find a decent-paying job outside of the health sector. Another friend and colleague in my own field thinks that “we have become too productive” and must rein in our ability to increase production in order to limit the attendant creation of pollution and chemical wastes that a modern economy seems to require.

There is ample precedent for such dark musings. In the past, there was Charles Duell, commissioner of the US Patent Office, who is said to have declared in 1899, “Everything that can be invented has been invented.”

And back in 1798, we had the Reverend Thomas Malthus, whose dire predictions about population growth outstripping the food supply[ii] gave rise to a whole new wave of pessimists (look up the word “Malthusian”) who loved to opine upon our poor prospects. Fast-forward to the 1970s, when one of these was Dr. Paul Ehrlich. He was a member of the Club of Rome, which preached a modern version of just about everything running out and becoming unaffordable[iii]. Enter Dr. Julian Simon, an economist with a lighter view[iv], who won several bets by putting his money where his mouth was: Namely, that commodities decrease in price — not quantity — over time. Simon won his bets handily.

Matthew Perry, an economic commentator, pointed out a famous observation made by Milton Friedman, upon being shown a project in India where a number of people were working on moving earth for the construction of a canal. When Mr. Friedman asked why they were using such small shovels, he was told that it was a “jobs program,” not really a legitimate investment project. Whereupon Mr. Friedman suggested that the workers might consider changing to spoons, to create even more jobs.

Friedman’s suggestion was similar to the idea behind an old economic fable in which candle- and candlestick-makers lobbied for building homes with no windows or, if there were to be windows, they would be covered during daytime[v]. This, they reasoned, would create thousands of new jobs for the artisans who made candles and candlesticks, since everyone would then need candles to see their way indoors during the day.

Fortunately, in any theory there is a crack that lets the light in. Whenever we are “running out” of something (whale oil comes to mind), its prices will skyrocket for a while; then a substitute is found and the substitution becomes a new commodity (in this case, oil). Commodity prices have been on a downward slant for more than a century.

Let’s consider what we know is on the horizon: Soon all the music that has ever been recorded will be in “clouds,” accessible through any Internet-connected device. The same will be the case for all literature, university courses, research papers and textbooks — all available for a small monthly fee. Cars will reach and exceed fuel efficiencies of 100 miles per gallon and be emission-free and safer. Entertainment will offer true three-dimensional projection. Breakthroughs in health, energy, food and materials sciences will transform the way we live and work. And this is just a glimpse of what we know will happen.

It is a fact that growth rates have faltered in many nations, such as the United States and Japan. It is also a fact that growth rates have reached into the stratosphere in many nations, such as China, Singapore, South Korea and some emerging economies in Africa and Latin America. But where pessimism rules, we read about only two alternatives in the current economic discussion:

The third alternative, growing the economy, is either completely absent from the debate or drowned out by a cloud of pessimism that dismisses its relevance. This is so bizarre that I cannot think of any rational or persuasive reason for this to be happening.

Profits are now at their highest point in US history. Any comparable level is found only in 1928, the year before the Great Depression began with another Wall Street crash. Today, two of the most important sectors in our economy, health and education, have become bubbles that are about to burst. For decades, both sectors have shown negative productivity that generates a demand for evermore revenue to feed them (mostly tax-based) that in total exceeds the annual productivity improvement of the nation’s labor force; thus, wages have stagnated.

Is higher productivity improvement the game-changer that will transform all human activity?

Increased production can happen only in two ways: Either through an increase in the labor force or through an increase in the productivity of the labor force. The latter is by far the more important factor; in most developed nations, the labor force will actually shrink. This is particularly true for the US, where the baby boomers are now retiring.

Thus, the only way to increase our growth is by increasing our productivity. I know of no case where any thinking person cannot increase his own productivity by 100%, 200%, 300%, or more, once the person knows the principles of productivity and applies them to her own situation. If you click on the Hornby interview below you will see what I mean.

Any Chinese person who moves from work that pays $400.00 a year to work that pays $6,000.00 a year increases his productivity by 1,400%. Singapore, as documented by former Prime Minister Lee Kuan Yew, went from Third World to First World in One Generation[vi]. Last year, Singapore’s real growth rate was 14.7% (#1); the US growth rate was 2.7% (#134).

There are only five ways resources can be freed. There is only one way resources should be redeployed[vii]. Know this, and get out of the way for those who come forth to do the impossible.

And please, stop this ruinous tax-and-spend discussion. That is what is in your way right now. Focus, instead, on growth.

[i] T. Cowen. The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better:A Penguin eSpecial from Dutton - Kindle Edition - Kindle eBook. 2011.

[ii] T. Malthus. An Essay on the Principle of Population. 1798.

[iii] D. Meadows, D. Meadows, J. Randers, and W. Behrens. The Limits to Growth: A report for the Club of Rome's Project on the Predicament of Mankind. 1972. Potomac Association.

[iv] J. Simon. The Ultimate Resource. Princeton University Press. 1981. Online 04.04.11. Available: http://www.juliansimon.com/writings/Ultimate_Resource.

[v] F. Bastiat. Economic Sophisms. Policy 17 (2). 60-62. Online 04.07.11. Available: http://www.silentpc.org/university/Candlemaker.pdf.

[vi] Y. Lee. From Third World to First : The Singapore Story: 1965-2000. Harper-Collins. New York. 2000.

[vii] T. Dahl. Interviewed by J. Hornby. Radical Action for Radical Times: Expert Advice for Creating Business Opportunity in Good or Bad Economic Times . Chapter 4. Productivity. 2009. SAS Institute, Carey, N.C. Online 04.05.11. Available: http://www.tordahl.com/RadicalActionforRadicalTimes.pdf.

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