Economics and Population

Until now most economic study has been preoccupied with the reasons one country’s economy is healthier than another’s. The comparisons help us discover the best practices. Over the years, we’ve improved economies by learning from each other and adopting the models that are most successful. On the whole, the evidence has demonstrated that nations with market-directed economies are more successful than those with centrally planned economies. The big centrally planned economies of China and the former Soviet Republics have, over the last few decades, converted to more market-driven systems. And they have found new prosperity.

Economists have paid a lot more attention to the relative success or failure of national economies than to the larger dynamics of the world’s economy. Students of economics understand the reasons why one nation outperforms another better than they understand the fundamental forces that direct the human economy as a single entity or the symbiotic relationships that support groups of national economies. Likewise we find it hard to track economics across long periods of time. What events occurred in the 19th century that made some nations prosperous in the 20th century? Are events occurring today that might undermine our economic health 30 years from now? We’re pretty comfortable looking at one national economy and its condition today. When we aggregate more than one national economy and then try to track economic trends over time, the equation’s complexity increases by orders of magnitude. It’s difficult for the economist to get his or her arms around the global economy as it evolves across the decades.

Economists are aware of this gap in understanding. They recognize the complexity of their subject matter. They make allowances for what they call “externality.” In economics, “externality” refers to the effects of an economic event on parties not directly involved – people in faraway places, in the past or in the future. The most vivid illustrations of externality, these days, come from the environmental realm. The carbon we’ve added to the atmosphere by burning fossil fuels has had relatively little effect on the people who pumped the oil, sold the oil or burned the oil. Most economic studies quantify our reliance on fossil fuels as a logical reliance on a relatively abundant natural resource. Viewed in this way, fossil fuels have been a precious resource fueling prosperity and innovation for more than 100 years with almost no bad effects. If negative environmental consequences are not felt within the economy where the petroleum is produced or where it is burned, then those consequences are “externalities.” It is increasingly evident, however, that burning fossil fuels has a generalized effect on the health of the planet overall and that it will have an effect on the health and welfare of future generations.

How Warren Buffett Uses Discount Rates To Value Stocks

Berkshire Hathaway Warren BuffettWarren Buffett has never detailed the process he uses to value the businesses he acquires for Berkshire Hathaway. However, over the years, he has provided some limited insight into his methods. Q3 2020 hedge fund letters, conferences and more Based on these comments, it is widely assumed that Buffett uses a discount cash flow model Read More

Those effects are external to most economic models, and it’s hard to quantify them.
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Economics and Population