The Rule of 72 is a useful piece of easily understood arithmetic. It’s a simple way to calculate compound interest, and it’s invaluable for illustrating the unrealistic doctrine of perpetual economic growth.
Here’s how the rule works:
Your bank account
You deposit $1,000 at an annual interest rate of 6%. How long will it take to double your money?
72÷ growth rate as a percentage
= 12 years
It works the other way too
I want to double my money in 10 years; what annual interest rate do I need?
Provided inflation doesn’t eat too much of your profit it’s all good news; but when we look at economic growth, or population, or the use of the planet’s resources, the rule reveals that things are not so rosy.
Pushing the envelope
China, India, and most developing countries aim at economic growth rates of about 8%. The Rule tells us (72÷8 = 9) that if they maintain that rate their economic outputs will double in 9 years. In 18 years they would quadruple.
Growth in an economy is accompanied by a similar rate of growth in resource consumption, and almost as much greenhouse gas emission.
How long can our environment cope with that? We’re already consuming far more resources and producing more greenhouse gas than the planet can sustain.
In New Zealand in 2010, our then prime minister, John Key, vowed that his government would enable us to catch up with Australia in per capita GDP by 2020.
Bearing in mind that he earned a B.Com in accountancy, attended management studies courses at Harvard University, and was a successful Wall Street currency trader, you’d think he’d have a decent grasp of arithmetic.
Unfortunately, like most politicians, he didn’t appear to have done the sums. Using history and The Rule, we’d have needed to achieve at least 7% annual growth to achieve that target, assuming that Australia maintained their usual performance.
It didn’t happen; even when helped by irresponsibly excessive immigration, we managed our usual 2% to 3% . We’re still miles behind the Aussies.
Globally, we’ve done quite well in the last few years. World population growth is down to a little over 1% per year; but even that would give us an unsustainable doubling of population in 70 years.
The good news?
We can fix it.
In countries where we’ve managed a significant increase in the standard of education for girls, population growth has drastically reduced, and often gone negative. This is something that needs maximum attention and resources if we want a viable planet for our grandchildren.
The bad news?
In some countries, like Nigeria, many are still producing 8 kids per family – doubling population in 20 – 30 years. And before we in the developed world get too smug, some groups, like religious extremists and the Pasifika population here in Auckland, are right up there with the Nigerians. Again, when girls from such groups get a good secondary education, the problem magically goes away.