I used to think about the growth of US GDP and wonder where it was coming from. I assumed that it was either from exploitation (we’re getting someone else’s share) or from population growth (we produce more because we have more people). Now, some would argue that we are growing wealthier by exploitation, but I’m unconvinced by the data, since global GDP is growing as well. As for population, some of our growth is attributable to that, but not all of it.
In 1869, the GDP / person was $2310. In 2005, it was $37,600 [1]. I know what you’re thinking: inflation! Nope, both of those numbers are adjusted for year 2000 dollars. That means that the US produces 1500% more per person every year than it did 140 years ago. That would mean that the average person [2] is 1500% wealthier than they would have been 140 years ago. That’s pretty amazing. Where is this wealth coming from? We’re creating it out of thin air.
There’s a scene in the movie “Lord of War” where a cargo plane is emergency-landed on a dirt road in a poor country in Africa. In 24 hours, the plane has been completely stripped down to the carcass, as locals literally dismantle it and cart off the pieces. It reminds me of those old movies where an army of ants devour a dead bird or something.
Anyway, I was watching and I was thinking about how that scene is a good example of wealth destruction in practice. That plane had tremendous value as a cargo plane, worth millions. But by breaking the pieces apart, it was reduced to being used for makeshift shelters and other purposes that plywood and scrap metal would do for.
The same process is true in reverse: what’s the value of the raw materials that go into an Airbus A-380? I have no idea, but I know it’s a hell of a lot less than the $350 million that each one costs. By combining the materials in an innovative way, we’re creating true wealth.
The growth in wealth is because we’re creating wealth itself. Human creativity and ingenuity has incredible power and promise. Think of what life was like 140 years ago, and what it’s like today. Is it any wonder that we’re 1500% wealthier? And this process is actually accelerating; we’re building wealth faster now than at any point in history (the recession notwithstanding).
And it’s not like we’re getting close to the end; I firmly believe that by the end of the 21st century, we can build the global GDP per person to be more than $1 million. And that’s inflation-adjusted 2000 dollars. But it might not happen, and if it doesn’t, it will likely be for one or more of these reasons:
- We don’t invest in education like we should, and human innovation declines
- Wars or other mass casualty events destroy wealth faster than we can create it
After decades of gloom, it looks like poverty in Africa might finally be falling. If they have the chance, if wars and plagues and famines don’t wipe them out, if Africa stands up, can you imagine how much wealth the people of Africa will be able to create over the next century? I can’t, but I hope we get to find out.
And seriously, watch Lord of War if you haven’t seen it.
1. http://isites.harvard.edu/fs/docs/icb.topic448946.files/lecture_facts_growth.pdf
2. Note I said that the “average person” is 1500% wealthier. Not everyone is.