Sunday, June 28, 2015

#179 / The Rule Of Seventy-Two

The Wall Street Journal is a business-oriented newspaper. No doubt about that. On its Opinion page last Monday, June 22nd, the Journal published an article by a couple of business school professors with this title: "How the U.S. Can Return to 4% Growth."

The methodology proposed in the article would "bring more people into the workforce;" or so claim the professors. It didn't seem to me that there was much focus in the article on paying working people more, or on redressing the outrageous income and wealth inequality that now typifies the United States economy. So, more economic growth presumably would mean more economic inequality, too. Given this, I think I have a few problems with the professors' prescription for new economic growth.

My comment today, though, is less with the content of the prescription than with the idea that increased economic growth is a good idea at all. 

Horrors! Could I really be suggesting that more economic growth isn't always and necessarily good? 

I could be suggesting that. 

In fact, I AM suggesting that. 

Einstein may or may not actually have spent his time time teaching students about the "Rule of 72," as the photo above purports to demonstrate. In the age of Photoshop, one never knows. But learning about the "Rule of 72" is a good idea for all of us. Click the link to get a non-Einsteinian but perfectly adequate explanation. In short, the "Rule of 72" allows an investor quickly and efficiently to answer two questions: (1) How long will it take me to double my money if I earn X%; and (2) What return must I earn if I wish to double my money in X years?

The "Rule" works for any calculation in which the effect of compound growth rates is at issue. To find out how quickly a number will double, if you know the annual growth rate percentage, you simply divide the growth rate percentage into the number 72, to establish the "doubling time."

If you apply the "Rule of 72" to a 4% annual economic growth rate, that means that economic activity (our GNP, or gross national product) would double in eighteen years. The GNP, as is often pointed out, includes all types of economic activity: more gun sales; more fast-food hamburgers; more toxic spills and toxic spill clean ups. 

If you buy the idea that an increased GNP (a measurement applicable within the human world that we create) requires a commensurate impact on the World of Nature (the world upon which we are utterly dependent, and which is limited in the resources it can contain), new "growth" in our world means more death and destruction in the World of Nature.

Don't take my word for it. Listen to the Pope!

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