So for the three or four people left in the world that haven’t seen avengers,
the two most recent films in the series centered around a magical gauntlet that
could instantly wipe out exactly half the population of the universe.
The villain’s justification was that this was necessary to restore balance
to a universe that was overpopulated and putting too much of a drain on resources.
Now instantly hazing half of the universe, is a bit of dick move, but…
When the same world can’t go a week without some news article telling us that global
climate catastrophe is inevitable, natural resources are running dry,
or that if everybody lived like the average american we would need 4
earths to sustain them it starts to sound like we should hear this Thanos guy out.
As much as economics been used as the justification of half-cooked annihilation is...
dubious at best there might be some legitimate benefits to this whole finger-snapping business.
So what would happen to the economy if half of the world’s population suddenly disappeared?
Would the survivors actually live a wealthier more prosperous existence?
What would happen to the larger economy?
And most importantly would this really do any good at all?
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Now of course half of the world’s population suddenly going missing
would cause a lot of problems in the short term.
It is reasonable to assume that people losing a huge pool of friends and family
would go straight back to work after what would be the largest calamity ever to inflict mankind.
So for the sake of this video, we will assume to explore the economy sometime
after the finger snap. Say 10 years or so after the event.
The main centerpiece of this plan was that it would leave behind a
Grateful universe?
If half of the world’s population was instantly
non existed then there would be some instantaneous wins for the survivors.
Once they were overall that emotional business of missing half the people they have ever known
they would find that suddenly there is an abundance of new real estate,
cars, boats, computers and all kind of goodies that were left behind.
This should on average make everybody in the world twice as asset rich instantaneously.
And it would, on average.
If we assume that standard rules around inheritances applied then there would
be a huge concentration of wealth into the accounts of those that already had a lot.
Rich people would get richer as the members of their family get vaporized and give their
collective wealth gets concentrated amongst a pool half its original size.
This would all depend on the estate taxes, inheritance laws, and the final wills of
a few wealthy people but overall it is likely to squeeze this chart ever higer.
Outside of a few wealthy trust fund babies it
still wouldnt be a terrible outcome for regular workers.
The factors of production are land labor and capital.
We have explored this on the channel before because these are the essential
ingredients that are needed to make anything.
Farmed food needs a lot of land, a little bit of capital,
capital just being any form of asset that assists with production,
like lets say a combine harvester. And of course finally farmed food needs farmers.
The same is true for a computer. The land required is much less but the factories and
warehouses still take up space. The machines that produce computer parts
are the capital and the people that put it all together are the labor.
Now after Thanos has snapped his fingers a majority of this land and capital will
still be in the hands of the people it always has been. Rich people.
But they aren’t going to be the ones out there putting together new furniture sets.
Because the labor pool has been halved, every worker is going to
have access to twice as much land and twice as much equipment on average.
What this means is that production will drop,
but it will not drop by the same 50% that the population did.
A farmer with twice as much land is not necessarily going to have enough hours
in the day to produce twice as much food, but they may be able to pick and choose
the best soils to work with to make sure they are not wasting what time they have.
A factory won’t be able to produce as much with half as many workers,
but if every worker had access to their pick of the equipment,
and unlimited overtime then they wouldn’t be producing half as much.
They might be producing 51% or 99% of what they were originally producing,
but it would be somewhere between these two figures. All other things been equal.
Now since there is less labour, and on average
workers will be producing more per person then they will be paid more.
Decrease the supply of labor, while raising the utility if individual
workers will mean hey presto that labour is going to cost more.
This is a big win for the workers that happen to be left behind.
And don’t feel too bad for the wealthy landowners either. Sure their return on equity won’t quite be
what it once was but they will still ultimately have to pay less individual staff members.
What this means for natural resources is that, sure, a little less iron ore will
be mined and a little less coal will be burnt, but it won’t be 50% less.
This hypothesis was first put forward by nobeloriate economist Robert Solow.
It should be noted that he didn’t win the Nobel prize for justifying the actions of Thanos,
but rather he won the prize in 1987 for his work on modeling
growth through the interaction of human labour and productive capital.
It just so happens that this model kind of justifies the actions of Thanos.
Now one big asterix that has to be put on the
great success of all of this is what it would mean for the
Wider economy.
Winning the snippity snap lottery might have great benefits short term for the individuals
left behind. Either throught better wages or less hand to share the family fortune between.
But long term things might not be so fantastic.
Starting with GDP, this measure on economic success is likely to suffer drastically.
To understand why, imagine there is an economy with only two shop owners in it.
The only exchange these people make is to buy a $100 birthday present for each
other once a year from the birthday boys’ shop.
Now excusing the poor manners involved in buying a present from the shop of the recipient,
the GDP of this birthday gift centered economy would be $200.
$100 dollars for shopkeeper 1’s birthday and $100 dollars for shopkeeper 2’s birthday.
Now say that a third shopkeeper moved into this hypothetical economy and made friends
with the other two. Well now they would also get a birthday present once a year as well. How lovely!
Standard logic would dictate that GDP would grow by 50% because the population has grown
by 50%, but wait, now every birthday involves two people buying a present,
for the birthday boy and there are three birthdays a year.
By adding one extra participant to the nation the
GDP of this birthday present based economy has tripled.
This model is of course extremely oversimplified and doesn’t account
for things like the shopkeepers personal budget for gifts in a year, scare resources
or the eventual limit of how many birthday parties one could reasonably attend but it
does show how the more people there are in an economy the more people are out buying things,
gifting things, investing in things and getting paid for doing things.
Which all naturally contributes to a higher GDP figure.
The speed at which money changes hands is called the velocity of money and it is a
very important for addressing things like genuine economic growth, and inflation.
Halving the number of people in the economy would lead to a reduction in GDP of over 50%.
This then means the GDP per person would actually shrink post-Thanos snap.
But how does this make sense?
We just saw earlier that on average, people will be producing more stuff,
how is it then that everybody would be poorer?
Is this some kind of flaw in this wildly speculative economic model?
Well no.
In “reality” The difference in the increase in
workers’ productivity and their reduction in GDP per capita,
would be bridged by a massive reduction in the price level of goods and services.
In plain English, things would cost alot less, because there is half as much demand and just
as much supply of land and capital.. so this GDP figure looks alot worse,
even though individuals would actually be better off on average.
GDP per capita with adjustments made for purchasing power parity
would be greater in a post-Thanos snap economy.
Alright, so it is still looking pretty good for our purple maniac here.
But what would this all mean
Long Term
In the very short term, the world would go into complete chaos.
For the following years after everybody comes to grip with this new reality,
people would do pretty well for themselves.
But long term this would actually be a huge hindrance on mankind.
A majority of the prosperity that we enjoy today has come from mankind’s ability to innovate.
From fires, that cooked food and illuminated the darkness, to nitrogen-based fertilizers
which all but did away with famines, there is a lot to owe to technology.
Halving the number of people would half the number of innovators.
The person that comes up with the solution to sustainable fusion, or the cure for any number
of diseases, productive AI, or an easier way to get to space might just have been barbequed.
Once an innovation is made it very quickly finds its way around the world,
boosting output and quality of life for everybody.
A breakthrough is not something that can be used up, so having
more people to share it between doesn’t matter.
When there is more people, there is well, more people.. thinking and researching and
experimenting waiting for that spark of genius that will lead to the next industrial revolution.
This impact alone would likely put humanity back many decades.
And all the same, in a future where tens of billions of humans can be supported amongst
multiple planets then the rate of technical innovation will compound on itself exponentially.
Maybe Thanos didn’t share in this optimistic view
of human brilliance, but that still doesnt mean that there werent..
Better alternatives
So while we are in the process of massively over-analyzing a movie, that was supposed
to be good fun, we may as well explore the problem that Thanos was trying to solve.
Thanos was acting on a solution to the central problem of economics. That is that
people have unlimited desires, but only limited resources in which to fulfill those desires.
The entirety of economics as a discapline is an attempt to understand and solve this problem.
Many people have many different theories about how best to answer this question.
Thanos simply argued that halving the number of people meant that there were
more resources left to fulfil the desires of the leftover population.
Which is, one way of doin it…
although it has to be realized that if the infinity gauntlet actually did give
him unlimited power he should have probably just doubled the resources of the universe.
Same net economic outcome without all the doom and gloom and death.
The other thing this whole model ignores is that eventually, populations bounce back.
As economies become wealthier there is less of an incentive
to have as many children for a number of reasons.
It’s expensive to raise children in developed countries, it makes it difficult to balance a
career, and there is less of a financial benefit to having more children because
developed countries tend to move away from a model where children
will work in family businesses and directly support their parents.
Look to countries like Japan where the population is actually shrinking
after once being a country with one of the highest birthrates in the world.
Post Thanos snap a lot of these barriers to raising children would be removed and
there may even be a greater incentive in the sense that businesses and governments around
the world would be desperate for labor and would potentially reward families for raising children.
Programs like this already exists and would only stand to become much more widespread.
What this would mean is that in a few generations’ time,
the population would be right back where it started.
Which either means this finger-snapping would need to become a regular thing,
or this whole exercise was ultimately for nothing.
Final thoughts.
So a thanos finger snap is a fantastic case study
that lets us explore a few really interesting area’s of economics.
And kudos to marvel for putting forward a workable solution to the central economic problem.
Would thanos really be able to look out to a grateful universe that was happier,
healthier, and wealthier because of his actions?
Well in the short term no, in the long term no,
but there may be a few years there where everything is actually great.
In the meantime, it’s a great way to show why we should be
thankful for our fellow man and do everything we can to ensure that
people are given every opportunity to live full healthy happy lives.
Not for any fluffy reasons like moral selflessness,
but simply because one of these people will eventually invent something we really like.
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