A Ponzi scheme, also known as a “pyramid scheme,” is a scam in which an unethical financial entrepreneur promises investors big returns, which he fraudulently generates from the contributions of later investors. Bernard Madoff is the most notorious recent perpetrator. He raised tens of billions of dollars from thousands of investors before he went to jail in 2009. New investors heard about the big returns earned by earlier contributors to the scheme and eagerly put their money in, which allowed the con artist to fool several successive new generations of victims over the course of two decades. Every Ponzi artist faces a day of reckoning. Eventually, he runs out of new investors. His actual returns have never been equal to the dividends he paid out, but he made up the difference by draining new accounts. Eventually, he can’t pay dividends any more. He doesn’t even have the money to return to late investors because he’s spent their money paying off earlier contributors, building his reputation as a genius.
Our economic dependence on population growth bears a disturbing similarity to a global Ponzi scheme. It’s relatively easy to create “economic growth” so long as there are more consumers every year. Directly or indirectly, we are all dependent on population growth for our livelihoods. But eventually, resources run short. Every pyramid scheme eventually collapses when the supply of new investors dries up. If we accept the obvious fact that this planet’s resources are not unlimited, then eventually the global supply of new consumers will be constrained.
The connection between population growth and economic prosperity was clearly recognizable 600 years ago. One of the earliest recorded treatises on economic expansion was written by an Arabian philosopher, Ibn Khaldun, in 1377:
“When civilization [population] increases, the available labor again increases. In turn, luxury again increases in correspondence with the increasing profit, and the customs and needs of luxury increase. Crafts are created to obtain luxury products. The value realized from them increases, and, as a result, profits are again multiplied in the town. Production there is thriving even more than before. And so it goes with the second and third increase. All the additional labor serves luxury and wealth, in contrast to the original labor that served the necessity of life.”
Six centuries ago an Arabian philosopher understood the basic machinery pretty clearly. Economic growth is generated by population growth, augmented by technology and motivated by improving lifestyles.
Fundamentally, every additional human being in the world is one additional customer. When the total number of potential customers for the world’s businesses declines, then the total potential volume of business declines. Our traditional model for economic growth is sabotaged by a stable or declining human population. We can, probably, create new systems for distributing value and maintaining prosperity for a stable population. But we’ve never had to do that before. Maintaining prosperity in a stable population will require new tools.
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