Chapter 25
Productionand
Growth
How many marshmallows would
you have in 24 hours if you started with one
and they were doubled every 15 minutes?
296
x 1,200
79,228,162,514,264,300,000,000,000,000
Productivity
Outputdivided by
Input
How do we go from this...
to this?
1800 2010 Change
Population one billion seven billion 7x
Life Expectancy 26 years 66 years 40 +
GDP Per Capita Per Day $3 $30 10 x
GDP: $70,000,000,000,000 Population: 7,000,000,000GDP Per Capita: $10,000
GDP Per Capita
Source:https://www.google.com.sa/publicdata/explore?
ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&tdim=true&dl=en&hl=en&q=world%20gdp#!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_cd&scale_y=lin&ind_y=false&rdim=region&ifdim=regi
on&tdim=true&hl=en_US&dl=en&ind=false
Rates and
Compounding
Linearversus
Exponential
0
8
16
24
32
40
48
56
64
1 2 3 4 5 62
48
16
32
64
24
68
1012
Linear versus ExponentialAdding versus Compounding
+
^
Rule of 70sYears to Double
70Rate of Growth
70 divided by
the rate of growth
1%2%
3%
4%
5%
RateYears to Double
70 ÷ 1 = 7070 ÷ 2 = 35
70 ÷ 3 = 23.3
70 ÷ 4 = 17.5
70 ÷ 5 = 14
Size in 70 years?
2 x4 x
8 x
16 x
32 x
One word
Productivity
Why do Standards of Living
differ?
Better atmaking stuff
Productivity
What people want
What is Wealth?
Anything that helps you create wealth
What is Capital?
CulturalHumanPhysical
IntellectualFinancial
Five Types of Capital
Worldview
Political
Legal
Economic
How people view and treat other
people
Expectations
Cultural Capital
Property RightsRule of Law
Political StabilityNo peace ... No prosperity
Cultural Capital
I look for three things in hiring people.
The first is personal integrity, the second is
intelligence, and the third is a high energy level.
But of you don’t have the first, the other two will kill
you.
- Warren Buffett, CEO, Berkshire Hathaway
IntegrityCompetence
Trust
Trust Knowledge and SkillsHealth and NutritionSocial Relationships
Human Capital
Health & Nutrition
Two typesTools
Natural ResourcesWater, Oil, Minerals
Physical Capital
Tools we use to make stuff
Natural ResourcesRenewable
Non-renewable
Physical Capital
TechnologyHow the world works
How we make smart things and make
things smart
Intellectual Capital
Research and Development
Patent System
20 Year Monopoly on your idea
Human CapitalIntellectual Capital
Money
Allows us to store labor and shift time
Financial Capital
Savingsversus
Consumption
Spend or Save?
Save instead of consumeInvestment in new capital
Increase productivity
Three Steps
Capital Allocation
Right capital at the right time
Innovation - Productivity
Continuous Innovation
Each year in school adds 10 percent to
income
Invest versus consume
Education
More peopleSmaller slices
Grow the pie faster than population
GDPGDP
per capita
Population Growth
Population Growth
A smaller slice of a larger pie is bigger than a larger slice of a smaller pie
U.S. Farmers1900 - 40 percent
U.S. Farmers2012 - 2 percent
Productivity Growth
More people
More ideas
More innovation
More wealth