Rich Karlgaard devotes his latest Forbes column to the billionaires of the future. It’s an interesting topic, but what particularly struck this observer was a simple demonstration of the long-term impact of a little more economic growth.
THE RULE OF 72 is a handy way to peg the years it will take for an investment to double. Take 72 and divide it by the compound interest rate. Earn 8% and you’ll double your money every nine years. Close enough, anyway.
In 1944, 72 years ago, the U.S. gross domestic product was $225 billion (in current dollars). Today it’s approximately $18 trillion. That represents an annual compound growth rate of 2.9%. If the U.S. economy had grown just one percentage point more per year, the rule of 72 says the size would be double what it is today. (Actually, a bit more, when you run the numbers: $37.1 trillion.)
Question: How many more billionaires would the U.S. have in an economy twice as big? How much more investment capital? How much more opportunity for entrepreneurs? With a $37 trillion economy, spread over 320 million people, there’d be no government debt or looming Social Security crisis, state and city pensions would be fully funded, and the country’s infrastructure would be spectacular.
All this would’ve been possible had the political class paid just a wee bit more attention to economic growth over those 72 years. A pox on them for not doing so.
