Reason for a New Age

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    What you will expect to see here are discussions of politics and tangentially economics. This blog will do its best to present a rational look at the world of today, how the modern world came into place, and the issues that are currently being discussed in the public realm.
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Methods of Growth / Future Growth

Posted by publius2point0 on 2010/02/12

As we saw in the previous blog, wealth and money are separate things. About the most you can say about there being a link between them is that the only feasible way to value wealth, in a practical sense, is with money though that value will vary with supply, demand, and inflation.

I also showed how money becomes inflated while wealth is being expanded. In a system of never-ending growth, the amount of money in the system will also endlessly grow so long as that growth is predicated on loans (which it almost always is), making the total amount of money in an economy (the GDP) and its rate of growth a decent indicator of the rate at which wealth is expanding.

It’s worth looking at the methods by which wealth can be expanded, though.

(In the Words of Top Gear) More is More

If I have 100 farmers producing 120 food units a day, this is less wealth than 200 farmers producing 240 food units.

While a simple point, it is a very relevant factor in the modern day world. For instance, you’ll see plenty of people saying that if we treat China one way, we should treat Cuba the same–that it makes no sense to embargo one nation for being a tyrannical, socialist state and then be perfectly friendly with another. But even with nothing more than largely untrained labor, China’s wealth is massive. Small increases in efficiency or ability applied on the scale of the total market can have dramatic effects on the global economy. India is in a similar position, having enough people compared to the modernized world, that it’s simply unignorable to the world market.

Of course, excluding factors like this, there is almost no practical difference between 100 farmers making 120 units of food and 200 farmers making 240 units of food. Per capita, neither group is wealthier. They both have the same amount of surplus product, so they are both equally as likely to exhaust all of their stores in a crisis for example.

I say almost however as there is a certain, minor benefit from sheer size. If 1 man out of every 100 is a genius, for every generation you’ll have 1 discovery. Any one discovery might increase production by the whole of society by 10%. So, each 20 years, you get a 10% increase in production. To double production, you need 8 generations (160 years). In a group of 1000, you’ll have ten geniuses with ten discoveries each year, each increasing production by 10%. Your first generation is already capable of producing your doubled growth, let alone waiting hundreds of years.

Again, this is an important consideration when thinking about China and India (or even ourselves). There is a quantifiable advantage in sheer population in terms of the rate of growth, the only question being feasibility and other concerns (like turning the surface of the planet into a concrete sheet).

Growth by Expansion

Any time a product is introduced, it must make its way through the market. You build ten, sell those, use the proceeds to build 15, sell those, use the proceeds to build 20, and so on. The creation of something new still only adds one small item of wealth in the world. You have to copy and distribute the product for it to factor into any particular equation of wealth. For the individual that’s making the product, of course, the difference between selling 10 units and selling 1000 might be enormous though neither value is significant on the global market. The advantage with growth by expansion, for a company, is that for every product sold the cost of development becomes less and less of a factor. Most often, you need to sell some hundreds or thousands of units before you have even recouped the cost of development.

To do all this, though, you need to be able to have better and better methods of trading long distance.

Adam Smith, in The Wealth of Nations, points out the importance of rivers for early commerce. You might be able to get any one item from point A to point B, but the issue is price per mile, not the ability for it to arrive. Between a horse and carriage with total cost of food for all the horses, and limited to the width of a single lane road, and a barge with one fellow with a pole, the fellow on the river might be much slower, but the feasibility of bulk commerce is much greater. Speed is rarely a large issue.

But where speed does come in is with the transmission of information. To deliver our product to more and further regions, eventually you reach a point where you need far-flung stations to oversee sale and often to understand the local peculiarities so that a product can be better specialized for the local needs. But this requires reliable and decently speedy communication with the central company, for proper organization. Fortunately for most companies, much of this work can be handed off to retailers.

As a company expands far enough, eventually the only way to expand is to enter foreign nations, which becomes an issue of diplomatic import and the stability of the local region.

Much of all of this is beyond the abilities of any one company to control, and ultimately it is better for infrastructure and diplomacy to be handled by a single source. But the quality of what is there can strictly limit or prove an immense boon upon commerce.

Efficiency versus Invention

I once saw someone ask why it seems that everyone always focuses on the horsepower of a car when that was only one way to make a car faster. Halving the car’s weight, for example, is as good as doubling its power.

There is a practical difference between these two solutions, though it might be largely specious depending on the instance; there is always a limit to efficiency. If I know a car of a certain volume must pass through gas of a certain density and makeup (like air) at a certain speed, I can create the absolute optimum shape for it to be. If I want to make the car as light as it can be, once I have reached 0, there is no more I can do. There is no optimum amount of power that I can put in the car, however. There might be some physical limitation based on the makeup of the universe, but if there was no limit, more would always be better.

In the business world, an example of efficiency is that of a factory worker versus a generalist. If I have four blacksmiths, I’m better to have one who manages the heat of the forges, one who makes horse shoes, one who makes nails, and one who makes swords than I am to have four blacksmiths each trying to do all four things. When a person does the same task repetitiously, they tend to be faster at it. They don’t move as much and the movements have been so often repeated that the person will have found a way to refine them to be as efficient as possible. When they have multiple tasks, by trying to juggle everything across a single body, they lose efficiency.

Another example would be that of data mining. I fear that I have forgotten the name of the company, but within the last year one of the electronics retailers announced that it had increased sales by some impressive percentile without doing anything beyond re-arranging their floors. When a person came out of an aisle, he’d always be faced with some small shelf of items that were correlated with the sorts of things that a person who wanted things in that aisle would also want. In return, the frequency of impulse buys increased and the store’s sales increased.

Taking only what was already there and reordering it to be more well suited to its task is a key factor of growth.

But, creating what has never been before is also growth, and unlike increased efficiency, it is limitless. If the world had only efficiency by which to grow, the rate of growth would gradually plateau as we slowly crept closer to the ideal–there always a diminishing rate of return for increased efficiency.

Theoretically, with invention, there is no limit to what mankind can accomplish. Eventually some universal limitations might make it forever impossible to improve, but we would still like to increase beyond those if we could. Anything we could ever dream of, we can and eventually hopefully will have. Eventually we might be able to instantly send any product or ourselves to anywhere upon the surface of the planet or any other planet. Communication might be direct from brain to brain at the speed of thought–which thoughts will be created faster than today due to improvements made on the human body. One really can’t know what we shall discover, but for all intents and purposes, with what we know today, I think we can safely say that we are not yet nearly to the physical limits of the universe in any of our endevours.

When you look at the stock market, inflation, or the deficit, the realization that there can always be growth is an important one. The number of people on the planet could be stabilized and each person instantly granted every new product as it is created, and yet there will still be room for growth.

Though speculative, it’s worth noting that we may be near such a point of development. In a simulated environment like World of Warcraft or Second Life, many of the practical limitations of the universe disappear. I could create an office for people to work in, sitting side by side, able to look at each others screens and offer advice, and yet these would only be virtual people looking at virtual monitors. The real people would be sitting thousands of miles away. There would be no need for a commute to work or flying overseas to hold a business meeting. We might not be able to eliminate the time lag it takes to move a person around the planet, but where one cannot feasibly climb the hurdles of the world, you can still circumvent them. As people cease needing to fly or drive about for work or most entertainment, the value of virtual products increases. There may be a limit to the size of the surface of the Earth and so land will always be a scarce resource. But in virtual space, everyone can have a thousand room castle that floats in mid-air if they want it, and AI servants who help them with any task.

As vat-grown meat and plant matter comes into existence, basic food production can be increased significantly and mining and electricity production become the only scarcities that much matter. Given a small enough population compared to our mining operations and power output, one might say that we’ll have reached an end of scarcity.

Personally, I suspect that like horsepower, the more electricity and minerals we have, the more we will want per capita. Still, the move from a physical world to a virtual one–should it happen–is likely our next step in this process. Wars over copyright laws and music sharing will be only the first conflict as this continues.


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