The other morning I was listening to Bloomberg as I was taking my second grader, to school. On the radio they were discussing the Japanese journalist that was recently killed by ISIS. Then they moved into the Eric Garner case, talking about how he had died being apprehended by police.
My son then piped up from the backseat and asked me, “Dad, why do so many people die every day?”
I answered, “Lots of people die every day, but even more people are born.”
He then pointed out, “But dad, they never talk about that part on the news.”
This conversation got me thinking about one of my favorite Warren Buffett investment themes, the ever-growing Economic Pie.
I wrote about the Economic Pie in December, but I didn’t go into exactly why the Economic Pie continues to grow over time. One of the primary reasons the pie gets bigger is because of our expanding population.
Knowing that we have growing number of people on the planet and a growing Economic Pie is one thing, but my conversation with my son piqued my curiosity. Later that morning, I went into a bit of a research binge to nail down some of the most important overarching demographic themes that impact our planet and the economy that we live, work and invest in every day.
I learned that according to the Ecology Global Network there are about 131 million births per year on Earth. That’s approximately 360,000 babies born every day.
The same study shows that there are 55 million deaths each year, or approximately 151,000 per day.
My son was worried that with so many people dying that the Earth might run out of people… but clearly that’s not a problem.
Let’s put these numbers into context:
• About three football stadiums* full of people die every day
• About seven football stadiums full of people are born every day
*assuming a stadium holds 50,000 people
This explains why we’ve seen our global population balloon from the year 1900, when there were about 1.6 Billion people, to today’s approximately 7 billion people. By the year 2030 there are expected to be over 8 billion people on earth, according to the Ecology Global Network’s population estimates.
While all this information answers my second grader’s original question, it happens to be an integral component of why the “Economic Pie” in the world continues to grow. More people demanding more goods (i.e. houses, cars, food, technology, medicine, fuel, etc.) creates and ever increasing demand to supply those goods. That means companies will continue to meet that ever increasing demand, hence their earnings have the opportunity to grow over time. Hence, the “pie gets bigger”.
With that said, you might be asking yourself, “Does a growing population equal a growing economy?” There are clearly more variables to a growing economic pie than just population growth, such as innovation, the education system, increasing worker productivity, more intelligent use of data, and the list goes on. However, a tailwind to this growth is the growth of a population.
• United States of America
o Average Annual GDP Growth Over 5 Years: + 2 ¼ %
o Average Annual Population Growth Over 5 Years: + ¾ %
o Average Annual GDP Growth Over 5 Years: + 8 ½ %
o Average Annual Population Growth Over 5 Years: + 0.4%
o Average Annual GDP Growth Over 5 Years: – ½ %
o Average Annual Population Growth Over 5 Years: – 0.1%
o Average Annual GDP Growth Over 5 Years: + 6 ½ %
o Average Annual Population Growth Over 5 Years: + 1 ¼ %
**Notice, the only country with negative GDP growth over the past 5 years has been Italy, which is also the country that has negative population growth over that same period of time. Coincidence?
With all of the detailed minutia that we are hit with every day, it’s always important to remember that it’s very often the simplest concepts that are critical to understand first. I think this straightforward concept of births vs. deaths is an interesting one to make sure you are aware of as an investor. Ultimately, our children have nothing to worry about when it comes to the world running out of people, and the economic pie will continue to grow.
Read the original article here.