My goal in this post is to show how quickly the world is changing through the perspective of economics. The explanations of the principles I used are intended to be rudimentary. My primary source for the stats used is here. I welcome questions and disagreements in the comments section.
Everyone keeps talking about this new age we’re living in; this age of the computer and the internet. Economists measure productivity by looking at how much a society (including its government) consumes and invests. The term used is “Gross Domestic Product” (GDP). The more money that changes hands, the more people are buying and investing. Economist do their best to account for inflation, so when we talking about a GDP doubling, it’s because people truly have twice as much money and are buying and investing twice as much, it’s not because inflation changed the price of a coke from $1 to $2.
For thousands of years the global GDP remained flat. In other words, generations consumed roughly the same amount of stuff. Many historians believe that after the English Civil War in the 17th century, Britain’s border control became tighter, lowering the spread of disease, extending life expectancy, and ultimately creating a larger living workforce. This enlarged workforce increased productivity and created the demand for a more sophisticated financial system. Many of the economic principles that developed the banking system in the 17th century are still used today. The scientific revolution, which grew the fields of physics, astronomy, biology, human anatomy, and chemistry, also occurred during this period. Science provided answers, answers drove innovation, and innovation created businesses. From 1600 to 1800 the global GDP doubled. In terms of economic achievements, citizens in the 1800s were twice as successful as those from the 1600s. There had never had there been such a large growth in the GDP in such a short period of time.
Historians widely accept that the industrial revolution occurred between the 1800s and 1900s. A major driving force in the industrial revolution actually started in 1543 with the invention of the steam engine. It wasn’t until the 1700s when it was first commercialized and another 100 to 200 years before it became widely used. This led to the creation of the steamboats, steamships, locomotives, tractors, steam shovels, tanks, and rockets. Travel became quicker and consequently, the world became smaller. From 1800s-1900s the GDP grew 6 times its original size.
To recap, it took 200 years (1600-1800) to double the GDP, then 100 years (1800-1900) the grow the GDP 600%. So what about the 1900’s? During the last century, the global GDP grew 4100%. For every $1 spent in 1900 there is now $41 spent today. Taking it a step further, for every $1 in 1600 there’s $532 being passed around today.
So what’s the point? Using traditional economic principles to determine changes in economic growth is futile. Economists explain what happens after an event occurs but their attempts economists make in selecting the next world economic powerhouse is as reliable as playing the stock market. Trends still exist, but they’re unreliable. Technology and innovation has advanced us to a point where anyone capable of acquiring an education and willing to work intelligently towards a goal has the ability to change the world. America has cultivated a culture for innovation, and it has paid off. No one can argue that America, and in particular the west coast, has led the way in technological breakthroughs. But what’s next? No one can say for sure. By using a principle called disruptive innovation, we can watch businesses, counties, and industries expand and collapse before economists have a chance to explain what happened.
In my next blog post, I will use disruptive innovation principles to illustrate how Google will run itself out of business if it doesn’t start diversifying its revenue streams.
