Wealth & inequality as derivatives of time
The eight billionth human was born on November 15, according to the United Nations. Should we celebrate or mourn this milestone? Is this explosive growth a calamity? Well, maybe. Maybe not. In the year 1800, there were only one billion people on the planet, and the average life expectancy was 28.5 years. The current average life expectancy in the world hovers around 73 years, with men at 71 years, and women at 75. In contrast to our ancestors, we are getting 45 more years on Planet Earth. Life expectancy has increased by 156 per cent, while population has increased by 700 per cent, thus giving us 20 times more lifeyears in just a matter of 222 years (life-years = population x life expectancy). How come?
I found answers to these questions, and more, in a fascinating new book I read recently — Superabundance — by Marian Tupy and Gale Pooley.
The world population is growing; yet the world is getting wealthier. If the resources of our planet are limited, then how is this possible? Remember Thanos, the supervillain from the Avengers movies, and his famous quip, “This universe is finite, its resources, finite. If life is left unchecked, life will cease to exist. It needs correcting.” To provide a contra point of view, Dr Tupy and Dr Pooley quote the American economist Thomas Sowell, “The cavemen had the same natural resources at their disposal as we have today, and the difference between their standard of living and ours is a difference between the knowledge they could bring to bear on those resources and the knowledge used today.”
How do we measure this growth in knowledge? The authors would have us believe that we can measure it with time. We buy things with money, but we pay for them with time. That means there are two prices—money price and time price. The money price is expressed in dollars and cents, while time price in hours and minutes. A time price is simply the money price divided by hourly income at the time of the purchase.
The explanation is quite simple. If a pizza costs $20 and you are earning $20 an hour, the time price is one hour, or 60 minutes. If the price increases to $25 but income increases to $30 an hour, the time price has fallen to 50 minutes. You now get 20 per cent more pizza for the same amount of time. Moral of the story: If you can produce the same amount in half the time, you’re twice as smart. Your knowledge has doubled. Time prices are elegant, intuitive, and simple. They are really the true prices we pay for the things we buy in life.
Let us look at another example for a simpler understanding: In 1960, Raj in Bangalore spent seven hours a day earning the money he needed to buy rice for his meals. In 60 years thereon, the price of rice increased, but wages increased manifolds more. By 2018, the time price of rice had fallen 86.2 per cent. Now Raj’s grandson works only 58 minutes to buy his rice. Raj’s grandson has six hours and two minutes to do something else.
There are some interesting statistics in the book. The time price of 50 basic commodities, such as oil and wheat and lumber and iron ore, fell by an average of 75.2 per cent from 1980 to 2020. That means that for the time required to earn the money to buy one unit in the basket of 50 basic commodities in 1980, you would get 4.03 in 2020. That’s a 303 per cent increase in 40 years. Personal resource abundance was increasing at a 3.55 per cent compound annual rate, doubling every 20 years. Over the same period, the global population increased by 75.8 per cent. Given that global resource abundance is equal to personal resource abundance multiplied by population, global resource abundance increased by 608 per cent. For every 1 per cent increase in population, personal resource abundance increased by 4 per cent and global resource abundance increased by 8 per cent.
Looking at the world from the perspective of time and the growth in knowledge, one needs to feel profoundly grateful for the billions who have gone before us and who worked, discovered, created, and shared their ideas so that our lives could be much better than theirs were. Let’s therefore celebrate and welcome the eight billionth addition to our family of abundance creators. The more, the merrier. Our growth in knowledge is only limited by the number of human beings who are free to act on their ideas for creating value. Economics then becomes the study of how human beings create value for one another by discovering and sharing valuable knowledge in free markets.
To me, Superabundance provided many profound ideas expressed simply and stated relevantly. Wealth, inequality and the future of Planet Earth need to be looked at through a new prism.