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Geoman

One thought has troubled me for some time in measuring wealth and growth. In the past there was a long way to go for someone to feel wealthy. There were tangible improvements to lifespan, health, welfare, etc. associated with great wealth. Therefore increases in GDP were directly tied to the happiness of people, and tangible improvements to their lives.

What is it like when we live in a world where being a millionaire is not a particularly important accomplishment? I live in a modest neighborhood, and my neighbor is fairly wealthy. he stills lives in his modest, but greatly improved, house. He also has a vacation home in a sunnier clime. He has a nice car. But...he admits, he doesn't really have any use for most of his wealth. He literally cannot not consume enough things to diminish it, or even put a dent in it.

How does this impact GDP? When more and more people have all their modest materiel wants satisfied?

My neighbor, when he made enough money to be comfortable (not more than $5 million), stopped working for the most part. Oh he plays around a bit, but really, he doesn't work that hard. Not as hard as he did when he made his money. he is underproductive, and is an underperforming asset. he is a drag on the growth of GDP. whatever avarice he once had is gone. he has satisfied all his needs. At best he works part time.

I guess the point I'm trying to make is that accumulated wealth slows growth. Success doesn't always build on success, it can lead to stagnation. My neighbor is the very definition of doing less with more, which is not something most economists consider.

"Is there some ceiling of human productivity that we have arrived at?" Yes, based on my example, I think so. The limit is us unfortunately - how much we can or want to consume. All exponential growth curves eventually morph into S-curves.

"Sometimes, the wrong policies, centralized micromanagement, or ossified assumptions can lead to economic declines such as the Great Depression." or Venezuela. seriously, could there be a better example of how government policies and economic mismanagement can roll back prosperity? Venezuela was, for decades, a decidedly middle income country. Now it is a basket case. In less than a decade, utterly ruined.

Another strange effect of technology is people "feeling" wealthier than they truly are. For example, overseas travel used to be for the rich and famous. Then became a middle income activity with cheap jet travel. Now...with VR, anyone can see whatever part of the world they wish. Sure you could still go there, but the point is that you feel richer, that the poor can do more, experience more with even a limited income.

So I guess part of what may be hurting nominal GPD is the mere fact that it no longer accurately measures our wealth. Upper middle income people feel progressively more wealthy due to technology, and because of this take their foot off the gas, much like my neighbor did.

I guess, to summarize further, I'm saying that GDP growth is in part psychological. It is driven by human wants and desires. These are not exponential, and have quantifiable limits.

Kartik Gada

Geoman,

Yes, there are many limits to GDP as a metric. Even more than some people feeling wealthy (most of the ultrawealthy still work hard), part of the problem is in the manner it is calculated.

There are a variety of new products your neighbor can buy when innovation makes them available, such as household robots to clean the bathroom (replacing the person he hires), longevity treatments, self-driving cars (which will have a high premium for a while still), etc.

VR does indeed commoditize many types of recreation and experiences, as the brain will 'feel' as though the person has indeed done that thing for real. Not many understand the disruptive effect of VR on seemingly unrelated things like real estate prices, the travel industry, male-female interactions, etc.

Geoman

http://www.bloomberg.com/news/articles/2016-04-19/the-sub-zero-club-getting-used-to-the-upside-down-world-economy

Good article worth reading, perhaps even incorporating.

fatcat

Btw, can you give an estimate from ATOM's point of view why the world GDP per capita growth has stagnated from 1994 to 2002. That was the time of personal computer s becoming mainstream and spectacular show of Moore's law. And yet the char shows a decade of virtually no growth...

Kartik Gada

Fatcat,

Btw, can you give an estimate from ATOM's point of view why the world GDP per capita growth has stagnated from 1994 to 2002.

It was due to the wind down and breakup of the USSR, which led to low GDP growth in all associated countries for the following decade. It was also due to a brief dollar strengthening due to cheap oil and US technology exports.

Note how GDP still reverted back to the trendline sharply thereafter. The trendline is what matters, always..

fatcat

KG,
I would expect cheap oil and techno exports to be a net increase to the GDP. Do you think that it was a deflationary pressure of the technology/atom that shows reduced growth?
And a more interesting question is do we have something like that in store for the up upcoming decade?

Kartik Gada

Fatcat,

The cheap oil strengthened the dollar briefly due to the US being the biggest oil importer by far at the time, and this is a $USD metric of GDP. So it does see short-term fluctuation due to currency rates.

PPP removes this problem, but introduces others, so the nominal ($USD) metric is still better.

For the upcoming decade, NGDP will continue to contract until the ATOM forces a major market correction that increases the level of central bank monetary expansion. Since GDP is below the trendline again (even as the trendline itself is steeper than it was in 1994-2002), we will see a reversion up. But this reversion up may require a major recession first to open the floodgates of QE..

India is the last major country to see a one-time currency gain (which China experienced 2005-12). This will increase the US$ GDP of India from $2.5T today to $10T faster than anyone thinks (just as China covered this distance in just 7-8 years)...

Neil Jensen

You have provided a lot of material that needs to be chewed upon before I could make any knowledable comment. Thank you for posting it.

Darius Stein

Has the author of this article ever considered the existence of biophysical limits to endless economic growth?

I am not aware of a single study, simulation or any kind of evidence demonstrating that GDP will ultimately be decoupled from energy and material use.

This matters, a lot! It suffices to take a closer look at the Planetary Boundaries framework first introduced by Rokstrom (2009). Essentially, we have already surpassed many of the safety zones for planetary boundaries such as atmospheric carbon dioxide, biodiversity loss and anthropogenic nitrogen removed from the atmoshpere. And already, we are quickly approaching the boundaries for saturation of aragonite in surface seawater (ocean acidification) and land surface converted to crop land.

The world, still lead by cornucopians and technology-enthusiasts, can no longer afford to ignore how earth processes and how their carrying capacity for human activities pose fundamental limits on economic growth in the medium run.

Kartik Gada

Darius,

GDP has already risen 5x per barrel of oil relative to 1974. That process is ongoing.

Geoman

Darius,

Well, one thing the ATOM does is more with less. For example, use of aluminum in cans began in 1957 - they each weighed 85 grams. By 1972 they were 21 grams per can, and 16 grams in 1992. It is 13 grams today. In other words, the same quantity of aluminum yields 6.5 times more cans. More from less.

GDP cannot be decoupled from materiel use? Seems to me the apps on my phone take increasingly little materials than the things they displace. In fact my smart phone consolidates a dozen formerly separate devices (stereo, clock, calendar, phone, message machine, recorder, maps, TV, etc. etc.). It takes a lot less resources than what came before, and does more, better.

In 1970 Harrison Brown, a member of the National Academy of Sciences, forecast in Scientific American that lead, zinc, tin, gold, and silver would all be gone by 1990. Didn't happen. In fact, will never happen. These predictions are always wrong for an important mathematical reasons that economists, and frankly anyone without advanced knowledge of geology, fails to comprehend. It's a bit complicated to explain in this format, but trust me, we are not going to ever run out of any "atoms" of anything, ever. In fact we will have more food, metals, and energy than we know what to do with.

"Land surface converted to crop land." Let's just run with that since it is easy to comprehend. In the U.S., since 1948 we have tripled our productivity per acre under cultivation. That is 300%. Our resource input to achieve this has also declined - we are using less water, less fertilizer, and vastly less labor per unit of output to achieve this goal. Maybe we are reaching a limit? Nope.

No doubt you've seen the impossible burger made from plants? How much more efficient do you imagine that to be than burgers from cows? How about 96% less land, 87% less water. 89% less GHG emissions.....

A new company Solien intends to do even better by making proteins from air and water. It takes just 10 liters of water and zero fertilizer to produce one kilogram of Solein, at a price comparable with the lowest soybean prices in the world. Beef requires 15,000 liters of water, and soy requires 2,500 liters of water. Imagine producing hundreds to thousands of TIMES as much protein per unit of input than we do today. That is more than enough to feed the world with our existing resources. Even with 10 billion, or 20 billion people. This is not some pie in the sky dream - they intend to start selling products in 2021.

The lower 48 has 1.9 billion acres of land. Around 788 million acres, or 41.4 percent of the U.S., is grazing land. If we fully convert to Solien, all that land could be re-wilded. That is eight entire states worth of land the size of Montana.

Imagine >50% of the Earth’s surface being turned into a national park. That is our future.

So..yes there are boundaries. But we are so far from them it is almost a laughable concept. And what will keep us well below those boundaries is the ATOM.

In fact...it took us 60 years to increase food yields 3X per unit of input. The ATOM is promising to increase food yields by >250X (minimum) in 1/3 the time.

Kartik Gada

Geoman,

Well, one thing the ATOM does is more with less. For example, use of aluminum in cans began in 1957 - they each weighed 85 grams. By 1972 they were 21 grams per can, and 16 grams in 1992. It is 13 grams today. In other words, the same quantity of aluminum yields 6.5 times more cans. More from less.

Excellent example. Something most people do not even notice.

It's a bit complicated to explain in this format, but trust me, we are not going to ever run out of any "atoms" of anything, ever.

Seconded.

That is more than enough to feed the world with our existing resources. Even with 10 billion, or 20 billion people.

Not just that, but fertility rates fall long before a country becomes advanced, these days. Many countries that were at 5.0 just 30 years ago are now 2.0, so world population may already be peaking naturally. We may not cross 9 billion people for a very long time.

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