welcome everyone this is alex tabrock
today we're going to be taking a look at
the rule of 70.
the rule of 70 is a simple rule of thumb
which says that if a process is growing
at a rate of x percent per period
then the doubling time is approximately
70 divided by x periods
so for example u.s gdp per capita grows
at a rate of about two percent per
period a little bit more than that but
we'll make our numbers nice so if the
growth rate of u.s gdp per capita is 2
per period then the doubling time for
gdp per capita is 70 over 2
or
approximately 35 years so if you're 35
years old today and you have a child
then by the time your child is 35 his or
her
standard of living will be about double
yours again holding all else the same
now let's compare with china in china
gdp per capita has been growing for
about the past 30 years at a rate of
between 7 and 10
per year absolutely astounding
so in china gdp per capita is doubling
approximately
every
seven
years
so this means that in the time it takes
gdp per capita to double in the united
states
in china gdp per capita will have gone
up by two to the fifth
or
by 32 times
now
even today china is much poorer than the
united states so what this tells you is
that in the past china was really really
poor
so poor that they could grow at this
enormous rate and still be poorer than
the united states today
china probably has a few more doublings
in its future though you can also guess
by these kind of numbers that china is
probably going to slow down its growth
rate is going to slow down we'll talk
more about that when we come to talk
about the solo model
let's use the same technique to look at
world population growth plates let's go
to google and pull in some data on
world growth rates
okay here from google as the world's
population growth rate and what we see
is that
in the late 1960s and early 1970s
the world population was growing at a
rate of about two percent per year
in other words as we just saw
the total world population was doubling
every 35 years
today however we're much closer to one
percent per year and in fact we're even
heading downwards heading downwards
might even go down to zero percent per
year would not be inconceivable
at a rate of growth of one percent per
year the total world population doubles
every 70 years this is one reason why
i'm not worried about world population
growth rates we can handle a doubling
over the next 70 years
that's really not such a big problem and
indeed if world population growth rates
continue to decline and probably even
stabilize it won't be any pop it won't
be any problem at all may even be an
issue that we want a larger growth rate
okay let's use our rule of 70 for one
more neat little trick
between 1970 and 2008
per capita medical spending in the
united states
grew at a rate of about four percent per
year
now remember
us gdp per capita is growing at a rate
of two percent per year so medical
spending is growing at twice the rate as
per capita gdp
in other words medical spending is
growing faster than gdp by two percent
per year
this means that as a share of u.s gdp
medical spending will double
in approximately 35 years 70 over 2.
now today medical spending as a share of
gdp is about 16 percent
if it continues to grow 2 percent faster
than does u.s gdp per capita then in 35
years it'll be 32 percent or
approximately a third of the economy
will a third of the economy spending
will be on health care spending on
medical spending
now it's clear that even if the economy
as a whole could handle
a radon medical spending of a third that
there's many people in the u.s economy
could not handle that right many people
below median income that would be a real
problem
so something is going to break
either it's going to be the budget
or it's going to be hopefully we'll be
able to slow down the growth rate of
medical spending
either way the rule of 70 gives us a
quick and dirty rule of thumb
for calculating doubling times and other
kind of interesting percentages
thanks very much