ACTIONABLE ADVICE FOR FINANCIAL ADVISORS: Newsletters and Commentaries Focused on Investment Strategy

Follow us on

Content Channels

Most Popular This Month

Most Popular This Year

Fewer, Richer, Greener: Why Jeremy Grantham is (Partly) Wrong

April 3, 2012

by Laurence B. Siegel


The economy across developed countries has grown steadily at 1.8% per capita, per year, since about 1800, when self-sustaining economic growth began in earnest.  (If one cares about how well individual people are doing, real per capita growth rates are the only ones that count.) Growth at that rate is remarkable in itself, amounting to a doubling of real personal income every 39 years, and a 35-fold increase in two centuries.

If this expansion in income is about to come to an end, it sure isn’t apparent in the data.  In fact, over the last decade, the period that Grantham identified as undoing all of the commodity price declines of the previous century, global growth (not First World growth) has accelerated.  India, Vietnam, and a number of African countries, the latter driven by high natural-resource prices, have joined the fraternity of fast-growing economies.  High commodity prices have caused some wealth transfer from commodity-poor to commodity-rich countries, but isn’t that what happens any time the price of a resource changes?  Isn’t that what markets are for –  to create price signals so that resource allocation can take place optimally?

The current situation is, in fact, “different” mostly in that the many, rather than the traditional few, are getting to participate in sustained economic expansion.  If you care only about people in the United States, this may be a difficult proposition to swallow, since unskilled workers here are truly having a tough time.  It’s a globalized world, so if you’re as productive as a Chinese laborer, you’re going to be paid like a Chinese laborer.  That was not always the case.

But if your perspective is global, this is a very special time to be alive.  First of all, your life is longer than it once would have been; life expectancies of 30 or 40 years prevailed in preindustrial societies.  Second, you get a little money.  Figures 1 and 2 show life expectancy and per capita income (in today’s dollars) for most of the world’s countries in 1800 and 2012, respectively.  (Each bubble in each graph is a country, and the size of the bubble shows the country’s population.)  In 1800, the richest country in the world had a per capita income of about $3,000 and a life expectancy of 40 years.  Today, no country in the world has a life expectancy that low, and only the very poorest countries have per capita incomes below $3,000.

Figure 1
The World in 1800: Income, Life Expectancy, and Population
The World in 1800: Income, Life Expectancy, and Population

Figure 2

The World in 2012: Income, Life Expectancy, and Population
The World in 2012: Income, Life Expectancy, and Population