Exponential Economic Growth

In a blog post written long ago, I discussed an equation that represents how quickly your savings would grow through compound interest. I mentioned that this sort of growth was called exponential growth and that it also applied to the growth of an economy.

I have since had the opportunity to look at some real data for our economy, showing how GDP per capita (a measure of the average income in a country) has changed with time. Plotting it as a graph it looks like this:

UK GDP per Capita

GDP per capita is flat (and low) for most of the graph until, there on the right… whoosh, it keeps shooting upwards. This is what exponential growth looks like. When things start getting big, they get a lot bigger, very quickly.

Here are some thoughts.

Economic growth is a Big Deal

The average person today is about 5 times as rich as someone living 100 years ago. With an average growth rate of 2% a year, the average person’s income should double every 35 years. Some poorer countries, like China, have managed growth rates of over 10% a year, which would see incomes doubling every 7 years! Increasing growth should be a big priority.

In some ways, this understates the increases in our standard of living. 5 times as much quantity of riches in 100 years doesn’t allow for the increase in quality. Would you rather drive a car built today or one built 100 years ago? Not only that, we can buy things that were never available then. Video games and smart phones. Televisions and roller coaster rides. Aeroplane flights and parachute jumps.

The Industrial Revolution was a Big Deal

What was the most import event in history? Those of a religious persuasion would say the resurrection of Jesus Christ, or the life of Mohammed. The discovery of the New World and the Moon landing also merit consideration. But looking at the graph above, the most significant event materially in human history was (probably) the Industrial Revolution. Before it, people’s income chugged along at the same level for centuries. After it, incomes started heading into the stratosphere.

Maybe recessions aren’t that Big a Deal?

By zooming in our chart, we can look at recessions:

UK GDP per Capita with RecessionsWhen you look at recessions in the grand sweep of increasing prosperity, they look rather insignificant; like small dips in the side of Mount Everest. I don’t mean to demean the hardship brought about by recessions – the unemployment, frustration and disruption to many. My point is that in aggregate, they really don’t halt the onward march to increasing riches.

Recessions are a bit like fires. I hope we can find ways to better prevent them and stop them doing much damage. But they do happen and do cause damage to some people. Luckily, we’ve found ways to help those damaged – fire insurance.

We need to find better ways to insure people against the damage done by recessions. We have social insurance – unemployment benefits etc, but there are political limits to how much we can use them.

Maybe we need to develop more private insurance. Nobel prize winning economist, Robert J. Shiller, in his book The New Financial Order makes the case for developing livelihood insurance – giving workers the ability to insure themselves against big drops in their income. Other new financial products could be used to insure against big house price drops, and problems in whole economies.

Maybe politics isn’t that Big a Deal?

During the time period covered during the big-upswing in the graph, we’ve had all kinds of governments. Laissez-faire governments that provide little beyond the constable and the frigate. Socialist governments that have ran entire industries. And all through these wildly diverging policies, prosperity has increased at much the same pace.

Maybe its that alternating governments average their policies out. Maybe the policies that would really increase growth (or reduce it) are too radical for anything governments are able to attempt. But ultimately politics doesn’t seem that big a deal.

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Photos of People Taking Photos

I came across this photo the other day:

Photos on Beach

A beach full of boyfriends taking photos for their girlfriends to share on social media. A sign of the times.

It is not as funny as this photo. A bunch of tourists taking up the famous, holding-up-the-leaning-tower-of-Pisa pose:

Photo at Pisa

I look forward to the next recursion: people taking photos of other people taking photos of other people.

 

 

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The A – Z of Music: U

The legendary Radio 1 DJ, John Peel, had this played at his funeral and it’s opening lines written on his tombstone. Less legendarily, my Uncle sang it with a live band on his recent 50th birthday.

But enough of its illustrious history, here is Teenage Kicks by The Undertones:

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Is It Just Me Or…

… do Lindt Lindor chocolates…

Lindt Lindor

… look a lot like a miniature chocolate Death Star?

Death Star

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A Different Point of View

E. L. James has decided to rewrite Fifty Shades of Grey from the point of view of the other character, Christian Grey, in her new novel Grey.

This has got me thinking… what other books could be rewritten from another character’s viewpoint?

The Holy Bible

Holy Bible

Poor old God. After a busy weeks’ work making the sky, land and seas; the Sun, Moon and stars; the creatures of the sea and the birds of the sky; all kinds of wild animals; and his crowning glory, mankind, God had hoped to put His feet up and finally enjoy His creation. Little did He realise what He was in for.

Before long, His beloved Adam and Eve had disobeyed Him*. Then one of their children murders the other. Things just get worse and worse. Sexual immorality, genocide, idolatry, child sacrifice. Watching from on high, God had hoped for something like Little House on the Prairie; instead He got something like Game of Thrones.

Things get so bad, God sends His only Son down to tell everyone to be cool and groovy and try to get along with everyone; for which effrontery He is duly nailed to a cross.

Sinking into anger and depression, God has no choice but to call in the Four Horsemen of the Apocalypse to put an end to it all.

Moby Dick

Moby DIck“Call me Moby Dick” begins this classic tale of a white whale. With florid prose and exhaustive detail, this Great American Novel lays bare the rich inner life of a Sperm Whale. Readers are treated to Cetacean cerebrations on such diverse matters as the wetness of water, the deliciousness of squid and shrimp, and the joy of the open ocean.

Over 135 incident-packed Chapters, we gawp as the whale swims westwards. We thrill as the whale swims eastwards. We cower as he swims down. We whoop as he swims up. We delight as he swims westwards again.

Such excitement is briefly interrupted in an odd incident in which Moby is harpooned by a mad old sea captain he vaguely remembers meeting before. But a quick ram of his ship puts paid to this interruption, and Moby can go on his exciting way: swimming east, west, eating some krill…

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London’s Skyline

In yesterday’s post, I mentioned that London’s skyline is sprouting skyscrapers at a rate of knots.

In case you haven’t seen it in a while, here’s a what London’s skyline looks like:

London's Skyline

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All Roads Lead to London

I apologise for the erratic blogging. My inclination to blog is rather like the hurried lover – it comes and goes.

I’m currently taking a bit of a holiday, visiting my relatives in Kent. I’ve been up to London a few times, and it looks like Boomtown, with cranes and new skyscrapers dominating the skyline. It’s been like that the last few years, as if the Great Recession didn’t hit the Capital as hard. Indeed, London and the Home Counties are very much the economic engine of the country.

It wasn’t always this way. Back when Britain was the workshop of the world, there was a more diverse economic geography. Steel from Sheffield. Ships from Glasgow. Cotton from Manchester. Coal from Newcastle.

As with all mature economies, Britain’s has moved from manufacturing to services and the economy has become much more concentrated – with high-value financial and professional services being clustered mainly around London*.

I partly think this is inevitable, but another part of me disagrees. I came across this post on Diane Coyle‘s excellent The Enlightened Economist blog.

Here’s a map of the planned motorways built from the late 50s onwards**:

Motorway PlansThey all extend radially from London, like the spokes on a bicycle wheel. Did the distribution of traffic justify designing the motorways like this? Here’s a map showing freight patterns in the early 60s:

Freight TrafficLooking at this, it would seem most freight travelled within regions – London and the South East as one region, the West Midlands and the Northern industrial cities as the other. Rather than a single hub at London, there perhaps should have been two hubs: one connecting the South East and one in North West England connecting Birmingham, Manchester, Liverpool, Sheffield and Leeds together.

It would seem that government decisions have helped create a London-centric economy.

This is all history now, but it poses questions for the High Speed Rail being proposed. HS2 will first connect London to Birmingham, then branch into two, with one branch heading to Manchester, the other to Leeds. The proposed HS3 would then connect Liverpool to Hull, via Manchester and Leeds, if it gets approved, but this would be very far off.

Are we making a similar mistake with rail as we did with the roads: prioritising a link to London over all else? Jim O’Neill, formerly of Goldman Sachs, now a Treasury minister looking at devolution to cities outside of London, agrees. Expressing skepticism over HS2, he says:

“I’d put it down as a nice luxury. It’s not obvious to me that it’s going to be useful to the north or the Midlands because all it guarantees is that people can get to London quicker than they can now.”

Instead he wants a cutting-edge transport network between cities such as Liverpool, Manchester, Sheffield and Leeds:

“It’s like creating the equivalent of a tube system. That’s way more valuable to the country.”

Maybe Lord Jim has a point?

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