The New Economics of Population Growth in a Finite world

historical_map_world_1800Summary: Most of us now live under ‘finite world economics’, where population growth results in a smaller share of wealth for each individual and the majority of the population, but increased revenues for Governments, nationwide businesses and multinationals who gain revenue from the entire population.  The rich win, the rest suffer.

The now finite World

When Christopher Columbus set sail for America, no one had a world map, doubt about a map the included America.  When Captain Cook ‘discovered’ Australia, as it approached the year 1800,  no civilization knew where all the land on Earth was located.  By 1900, humans knew where all the land was, but still had not explored all that land. Now (2017 at the time of writing), we basically know where all the land is and have even allocated ownership and mineral rights of all the land. Our world is now finite.

The post explores the ‘finite’ world concept, then discuss each of the two dynamics resulting in the widening of the gap between rich and poor.

The world is now finite?

Of course the world was always finite, but as economics is a construct of society, economics is changed by now seeing the world as finite.  There is still wilderness, but now we also see wilderness as playing a key role.  Not long ago almost all of humanity just saw wilderness as ‘unused land’ where as now much of society sees it as important that most wilderness still existing remains wilderness, and thus there is no ‘unused land’. ‘Wilderness’ belongs to all of humanity, and all the rest of the land has an allocated owner.  Of course this leads to dispute over lowering possibly reducing wilderness to allocate new owners to this land,  but even anyone thinking of wilderness as important is relatively new.  Of course the biggest ‘wilderness’ is the international waters of the oceans, and at least one large power has embarked on a program nationalise the oceans as far as possible.

Supply and Demand.

Where supply is finite, it stands to reason that increasing demand will see prices rise.  Finite land and minerals means cost of housing and other goods increases as population increases.  But as population increases,  the supply of labour actually increases with lowers the price gained for being employed.

Dynamic 1: market growth.

The stock market is built on the concept of ‘growth’. Investing is promoted as being about growth in the value of shares, which in turn requires companies to grow.   The main boards of the stock market are dominated by mature companies which almost always have national reach already.  In a mature industry, on company can grow by gaining market share at the expense of a rival, but overall the effect on the stock market index cancels out.

However, in a mature market, any growth in the population provides growth by simply maintaining market share.  If the population grows 2% every year, then all a company has to achieve to deliver 2% growth to shareholders, is to maintain the status quo.  In such an environment, what ever growth (or even contraction) of a company with the market, the result will be improved by 2% if there is 2% population growth.

Dynamic 2: Asset Value growth.

This is where the ‘finite world’ perspective has brought a change compared to the previous ‘infinite world’ perspective.  If you own land in a world where new land is being constantly discovered, then as the population grows the total amount of land people own will grow.  But in a finite world with a finite amount of available land, as the population grows the amount of land does not grow, but rather each allocation of land becomes more precious. The amount of land is fixed, but the value of that land grows. This means those who own land are seen as gaining wealth, while at the same time the amount of land available per person decreases, so on average people enjoy less wealth in terms of land.

Minerals behave in a similar manner.  If new places to find gold are constantly discovered, then the worlds total supply of gold is seen to keep increasing.  But as the alchemists long ago discovered, the reality is the Earth has a fixed amount of gold.  Making each gram of gold more valuable by creating more uses for gold means it is economically worthwhile to extract more gold, but the amount of gold resources a country has is actually fixed.  More people means less gold per person if those gold reserves are considered jointly owned by all the people,  or more wealth per person for the owners of the gold reserves if the ownership is not shared with the new people.

Conclusion.

The impact of population growth on economic fortune changes between the view of a ‘finite world’, and an ‘infinite world’.  In an infinite world, population growth is good for everyone as new assets can be found for the new people.   In a finite world, population growth simply means a smaller share of every asset for every person.  The large assets of the very rich become more valuable, but the bulk of society feels the pain.

During the early days of the growth age when the world civilization occupied what growing the world seemed infinite and more wealth was being added to the pool to be shared, and population growth could coexist with growth of wealth for all.  But in a finite world where new land is not being discovered and mineral wealth is recognised to be finite, more people simply means a smaller share per person,  but more wealth to those who currently own that finite supply.

The growth age saw the world change, from a world where no human knew about the entire globe, to a world where now every young child at school knows the globe. From a world where new undiscovered lands and riches seemed limitless, to a world where we can estimate the quantity of every precious commodity, and measure global wealth. We have arrived at the finite world. In this finite world, there are two economic dynamics to population growth, and they both result in the rich getting richer, while the majority share their wealth with an increasing population.

 

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