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Evolution and Compounding

In his book titled Evolution of Everything, the author, Matt Ridley, says that all human progress has been
by evolution, meaning small incremental advances by many people each year, not by major
breakthroughs by one human. To understand the importance of evolution we need to apply the math
rule of “compounding”. The easy way to do that is with the math rule of 72. That means you divide the
number 72 by the annual rates of growth of a “thing” and the answer is the number of years required
for the “thing” to double in size or value.

For example, to understand the advance in human knowledge of science and technology (S&T), let’s
assume the advance in human knowledge of S&T has been one percent per year. (I don’t know the real
rate). Dividing 72 by 1 we get 72 years for human knowledge to double. That is not impressive until you
calculate the increase over 5,000 years of recorded human history. For example: One doubles to 2, 2 to
4, 4 to 8, 8 to 16, 16 to 32, 32 to 64. That means the size or value of a “thing” is 64 times greater after
only 6 doubles. For long periods of time compounding has amazing results.

The same compounding rule applies to the growth in the economy of a country. The US had an
economic growth rate of about 5% per year over the last 40 year. That means the US economy is 7 times
larger than in 1982. By comparison, China’s economy grew at 10% over that 40 years to increase by 45
times. During the 40 years from WWII to the early 1990s, the Japanese economy also grew at about 10%
per year to 45 times its previous size. The US helped both countries achieve that by opening our borders
tariff free to their exports to the US. Neither country opened their border tariff free for our exports to

That means we helped their growth by that much and received nothing in return. In the last 40years we
exported more than 20 million US well paid manufacturing jobs and helped raise about 300 million of
Chinese from poor to middle class by their standards. As a result, our percent of the US population in
middle class declines from about 60 to 50 percent. Ten percent of our population dropped from middle
class to poor.

Japan’s economy matured in early 1990s after40 years and its growth rate dropped to near zero.
Country economies reach a natural economic limit based on population, natural resources and their
worker productivity. It appears the China economy is slowing for the same reasons. That’s a good thing
for the US. President Xi of China has a goal to replace the US as the largest economic and military power
in the world making it the only world superpower. China is our greatest economic and military threat.
Our Washington leaders need to wake up and stop helping them.

Ralph Coker