Chapter 25

Productionand

Growth

Marshmallows

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

Cultural 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

Free to Trade

Human 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