If you prefer to listen rather than read, this blog is available as a podcast here. Or if you want to listen to just this post:

Or download the MP3


Einstein is said to have remarked that “compound interest is the most powerful force in the universe”, or maybe he said it was “mankind’s greatest invention”. Or more likely he said no such thing, and this quote ended up being attributed to him later, as is the case with so many of his supposed quotes (nor does it just happen to Einstein.) Regardless the quote persists because it has an element of truth to it. Compound interest acts as something of a juggernaut, slowly gathering momentum until it’s essentially unstoppable. All the way back in 1769 an Anglican minister and actuarial mathematician named Richard Price gave this example of its power:

A shilling put out at 6% compound interest at our Saviour’s birth would . . . have increased to a greater sum than the whole solar system could hold, supposing it a sphere equal in diameter to the diameter of Saturn’s orbit.

But, of course, no one did invest a shilling at 6% at the time of Jesus’ birth. And the reasons why are probably obvious, but they bear reexamination despite their obviousness.

Perhaps the most obvious reason no one did it, is that there are no banks which have survived from that time till this. And after the recent financial crisis, it should be an open question as to what it even means for a bank to “survive”. There are some very old banks in England, but it’s pretty clear that none of them would have survived for the last 300 years (or even the last 30 without government help. And not only did no banks survive from 0 AD until now, but no country has survived. (As you may recall I argued in a previous post that very few countries have survived intact for more than about 100 years). If it had been possible to make such an investment, another question is who would the beneficiary have been. The Japanese Imperial Family has apparently been around that long, but I’m not aware of any others. Or perhaps there’s some organization that, had they been far-sighted enough, could now own a sphere of money as big as the Solar System? There are a few Christian Churches who, in theory, trace their organization all the way back to the death of Jesus, (which I suppose is close enough) and perhaps if any banks and countries had survived with them, they could have made that investment.

However, even if the Orthodox Church of Jerusalem or Emperor Suinin had wanted to make such an investment and even if there had been a bank around to accept it and hold on to it all the way down to the present day (paying 6% interest the entire time, though even 1% would probably still get you the Earth and all of its productive assets.) There is still one, final, insurmountable hurdle. They must have figured out some way to ensure that no one, in all the time between 0 and 2018 AD, could have ever raided the “piggy bank”. That everyone from bandits, to the government (or are those the same thing) would have left that giant pile of money sitting there, untouched for over two thousand years. And of all hypotheticals we’ve considered, that is the least realistic of them all.

In any event, regardless of what Einstein did or didn’t say, it’s evident that the power of compound interest is checked by many things, the stability of the banking system, and of nations, by impatience, greed, and the longevity of organizations. And this is probably a good thing, even if the Japanese Imperial Family would do a great job of running the world, I think the process of selling it to them would be hugely disruptive. And in fact I would swear that I heard a podcast a couple of years ago (Radiolab maybe?) that claimed there was a time when people were so worried about bequests that lasted for 100s of years, that moves were made to limit them, but for the life of me I can’t find it. In any event it’s not important, the important thing I want to emphasis is first, the power of even a tiny effect if that effect compounds (and even non-compounding effects if they last long enough.) And second that when things get derailed it’s often because of instability rather than the reverse.

Compound interest draws a lot of attention, not only because it provides exponential growth, but also because it’s a simple system which is easy to track. Anyone can sit down and put together a spreadsheet and see exactly how big the principal gets, and if they like, they can adjust the interest rate and see that earning a 6% interest rate is way better than a 20% improvement over earning a 5% interest rate. The question I want to examine is whether there are other things which act like compound interest in their potential for growth (and by extension impact) but which we have missed because they’re hard to measure. Is there anything on which we’re accumulating a sort of societal compound interest and if we are, which things are accumulating a positive interest rate and which things are accumulating negative interest?

It may be that there are only a few things like that, and that even if we don’t have a firm handle on them, people are still aware of them, and working to solve them. But I’m also interested in things which don’t compound or do so very slowly, but which might be disastrous if they continue for long enough. These things are even harder to see, but more important to discuss because of that.

Let’s start by looking at societal trends that most closely resemble compound interest. Here, the first one most people think of is population. I already spent a post talking about this, so I don’t intend to spend much additional time on it, but you can immediately see where the fact that population compounds causes problems on both ends of the spectrum. First you have a potential Malthusian Catastrophe, which people have been discussing since, well, the time of Malthus, and more recently, particularly in the more developed world, people have started noticing potential problems on the other side of things, of having too low of a birth rate, which compounds in the other direction.

As I said in my previous post I think both directions have the potential to be catastrophic, and to again quote from one of the all time great movies of the past century, Tommy Boy, “In auto parts, you’re either growing or you’re dying. There ain’t no third direction.” As it is with auto parts so it is with humanity. I don’t think there’s a very credible, non-dystopian scenario where we have a precisely stable population.

In an attempt to not be entirely pessimistic, let’s now turn to look at something which compounds in a good way: knowledge. In fact not only does knowledge compound, but the rate at which it compounds is going up. It’s as if you had an investment that started out paying 1% per year, but quickly went to 10% and then 100%. I am often critical of technology, particularly when it’s implemented naively, but this is one things it has done quite well.

At this point, I might toss out a statistic on how fast knowledge is currently doubling, and I will, but it’s going to get a little meta. If you do a Google search on rate of knowledge doubling you’ll get one of those info boxes, and it will say that knowledge is currently doubling every 12 months and soon it will double every 12 hours. This box links to an article written in 2013. The article has no reference for the current 12 month doubling rate (and in fact it actually says it’s 13 months) but does link to an IBM paper (on an unrelated subject) for the 12 hour doubling rate. When you look at the article it actually says 11 hours (and by the way, I can forgive both roundings, I appreciate the elegance of going from 12 months to 12 hours) and goes on to say that the 11 hour number is set to happen “four years from now”. When was the paper written? 2006! Meaning back in 2013, knowledge was presumably already doubling every 11 hours, and possibly even quicker than that. And who knows what the doubling rate is now. I looked for a more current figure, but all of the top results reference the same 2013 original from the infobox, and most of them repeat  the claim that “Soon information will double every 12 hours” not aware that that was a prediction from a 2006 paper for the rate of doubling in 2010.

In any event, I assume knowledge has a certain rate of doubling, and that the rate is increasing. And when people are optimistic about the future, what you find when you peel away the layers is that they are mostly relying on this positive compounding overwhelming any other negative compounding or even any other negative trends. To put it simply, they feel that the future is going to be awesome because we’re getting smarter. I am definitely sympathetic to this point of view, and it has a lot going for it, but I’m not sure it’s quite the unalloyed good people think it is. First, however fast knowledge is increasing, the human brain isn’t getting any more powerful. And I’m well aware that this leads directly to transhumanism, but as I just pointed out with some of the questions in the last post, replacing ourselves with artificial intelligence in order to keep up with the growth of knowledge, is something which could end very badly. Of more immediate concern, the pressure for scientific knowledge to increase has lead to a massive system of “publish or perish” which has in turn created the replication crisis. All of which is to say, as I so often do, I hope the optimists are right, but I think the challenges are vastly more significant than they think.

The other famous compounding trend that’s gotten a lot of attention over the last few decades is  Moore’s Law. Of course any mention of Moore’s Law has to be accompanied by the obligatory mention of concerns that it’s running out of steam. The next step in this discussion is for someone to come along and mention quantum computing and how it will revive Moore’s Law. And of course all of this, once again, leads directly into transhumanism, AI and the aforementioned awesome future, which I’ve probably already spent enough time on.

As the circle widens evidence of compounding or exponential effects becomes harder to find. And we start to move into the realm of long term trends which may or may not have compounding effects. Despite this, even if something doesn’t grow or shrink exponentially if grows or shrinks period for long enough, inevitably problems are going to arise.

I have already discussed lots of things which fit this criteria, and so I’ll mostly be reviewing trends we’ve touched on previously. To start with, there’s, naturally, the national debt, which I discussed a few months ago. I think a case could be made for the debt growing exponentially, certainly if you look at it just starting in 2000 (or even 1980) that’s what the curve looks like, even as a percentage of GDP. However if you widen the view and go all the way back to the countries founding you’ll see lots of debt peaks which later dropped to more manageable levels. It should be said that on all previous occasions the peak was due to war, and the war ended. This time there is no war (or if there is, it shows no signs of ending). For this reason and others I’m on record as saying that I expect the debt to essentially follow the track it’s already on rather than dropping back as it always has before. As to what that might mean, I recommend reading my previous post.

Another area where exponential growth is often mentioned is social media. And as I’ve pointed out a couple of times this isn’t necessarily a good thing. The more persnickety among you may argue that growth in social media is just a subset of the growth in knowledge (or even Moore’s Law) which we’ve already covered, but while most people don’t directly interact with “knowledge” they are intimately involved with Facebook. Also, I don’t consider this to be something that truly compounds, for one, I suspect that Facebook’s growth will be more of an S-Curve, than an unbounded arc towards infinity. Additionally and obviously there aren’t infinite people… All of this doesn’t matter, because Facebook and similar social media sites are interesting for another reason. If you grant the premise, which I and an increasing number of others have made, that Facebook is actually doing more harm than good, then I think it provides a great example of something that’s not intrinsically bad, but only becomes so after significant growth.

In other words, if we look at the trends associated with Facebook that actually concern people we can see where they all started out benignly, and only began causing problems once the curve/userbase reached a certain level. Let’s just look at a few examples of trends within social media.

Coordination: Looking back to my Moloch post I mention that the best way to get around “races to the bottom” is to coordinate. Unfortunately Facebook has taken coordination to a level where instead of bringing people together it’s allowed them to splinter into incredibly narrow ideological niches.

Speech: As I pointed out in the last post where I talked about social media, we’re discovering that excessive speech can be used to censor almost as effectively as actual censorship.

User Base: Having a massive user base is what makes Facebook appealing, it also provides a single point of failure where one bad decision can have a gigantic impact. And I’m not even talking about the whole Russia/Facebook controversy, I’m talking about how tiny changes to one of the algorithms is national news.

One trend which I haven’t spent a lot of time discussing is the rise in inequality. It’s not that I haven’t been aware of the discussion or the underlying problem, I just wasn’t sure that I had much to say about it that was unique or interesting. Still it’s a problem I’m interested in, so just recently I started reading The Great Leveler, I expect I’ll eventually devote an entire post to the book, but for now it does have something interesting to say which ties directly into the current topic. From the book jacket:

Ever since humans began to farm, herd livestock, and pass on their assets to future generations, economic inequality has been a defining feature of civilization. Over thousands of years, only violent events have significantly lessened inequality. The “Four Horsemen” of leveling–mass-mobilization warfare, transformative revolutions, state collapse and catastrophic plagues–have repeatedly destroyed the fortunes of the rich. Scheidel identifies and examines these processes, from the crises of the earliest civilizations to the cataclysmic world wars and communist revolutions of the twentieth century. Today, the violence that reduced inequality in the past seems to have diminished, and that is a good thing. But it casts serious doubt on the prospects for a more equal future.

Here we see two interesting ideas associated with rising trends in general. First they often have unintended consequences. (A topic which can never get too much attention.) In this case it’s the unintended consequence of reducing violence. And as great as this is, Scheidel argues that much like a forest fire, you need one every so often to clear out the accumulated deadwood. Which is not to say that you couldn’t have a post-violence society which was more equal, but in which everyone is objectively worse off. Thus even knowing, that sans violence, inequality is just going to continue to rise, that may still not be a trade we’re willing to make. And so, inequality just keeps growing, but this takes us to the second point illustrated by the example. Things can’t grow forever, and as we saw in the example of trying to earn compound interest since the birth of Jesus, when they do break, it’s generally though instability, of exactly the sort Scheidel is talking about. If we avoid mass-mobilization warfare, does that just mean we’ll eventually have a transformative revolution, or that if we avoid both the state will just collapse? Which wraps this point in with the first one. It may be that you can only avoid a forest fire for so long, and that eventually one comes whether you want it or not. Recall that it’s not just the rich getting richer, most everyone else is getting poorer, are you sure that’s a trend that can continue forever without ever crashing under its own instability?

In other words all of this is to say that no matter how innocuous or small a negative trend is, if it continues for long enough something has to break. Fortunately humanity has gotten pretty good at making course corrections. Still there are some recent trends where our attempted course correction has so far been ineffective. And other cases where the course we should take is clear, but difficult. And finally there are some cases where I’m not sure what sort of course correction we should make, and even if I was I’m doubtful we’d ever take it. In closing I’d like to provide one final example that combines a little bit of all of those issues.

The example I’m thinking of is the recent increase in deaths of despair. Here, most of the attention has been focused on people overdosing on opioids, and my sense is that people feel it’s a problem we’ve just recently become aware of, and that we have corrected our course, it just hasn’t quite taken effect yet. I certainly hope that is true, but even if it is, there’s more going on than just opioid addiction. First, it’s not as if opium was just barely discovered, or that heroin was only recently created (Bayer started marketing it over the counter in 1895.) The epidemic of overdosing is largely unique to our time and place. Second, even if you strip away deaths of despair to do opioids, you still have an increase in suicides and deaths from alcoholism. One writer puts it this way:

Opioids are like guns handed out in a suicide ward; they have certainly made the total epidemic much worse, but they are not the cause of the underlying depression.  

(As long as we’re on the subject did you see the story about the fentanyl bust in Boston? 33 lbs, which may not seem like much, but fentanyl is so bad, that’s enough to kill every person in Massachusetts.)

Returning to the quote, if there is an underlying depression, and I believe there is. All of the explanations for it involve things like job loss, and inequality, both of which seem destined to get worse. As I already said we’re pretty good at course correction, but job loss is unlikely to get better as automation becomes more prevalent, and if we buy the thesis of The Great Leveler, inequality is unlikely to get better absent violence. Accordingly there is at least some justification for thinking that the trends are going to continue, that whatever course correction we have initiated is not going to be enough.

I said that the second possibility is a change of course which is clear, but difficult. In this case it’s clear that we need to remove the despair. Most sociologists agree on what that would take: more high-paying manufacturing jobs, stronger families, and a general feeling of being useful. Some of those are easier to define than others, but all are incredibly difficult to accomplish. Though my argument for a long time has been that this is what people were hoping for when they voted for Trump. And while I assume some of them genuinely thought he could give them all that, I imagine most were making a speculative attempt to complicate.

Finally deaths of despair also fall into that category of problems where I’m not sure what to do. The world has moved on and we can’t turn back the clock. Trump can promise to bring back manufacturing jobs till the cows come home, but he’s unlikely to have much of an impact. The trends we see are too massive to be stopped so trivially. Thus saying we need more high-paying manufacturing jobs is not all that different from saying we need a miracle.

If the trends can’t be stopped, and as I said, I hope they can. It may initially not seem like a catastrophe. But this is where the length of the trend becomes important. Taking just the opioid component (and remember there’s a lot more going on with deaths of despair.) If things merely continue as they have been we’ll end up with 420,000 additional dead people in the US over just the next 10 years (basically equal to all the US soldiers who died in World War 2). And that’s not all deaths that’s deaths over the pre-epidemic baseline, which I’m pegging at around 1999-2000. (Figures extrapolated from charts linked to in the show notes.) This all assumes that we stop it here, and it doesn’t get any worse. If, on the other hand, the trend continues to rise at the same rate it has been, a 5x increase over 17 years (from 1999 to 2016) then by 2035 we would have a quarter of a million people dying every year.

I don’t think that will happen, and it’s possible that the opioid epidemic is a better example of a trend we missed than a trend which will continue. Which is to say that if you had predicted that overdose deaths from opioids would go from around 10,000 in the year 2000 to 52,000 in the year 2016, people would have thought you were crazy. And if they had believed you they would have done everything in their power to stop it. The question I want to leave with, is what are the current trends where we’re metaphorically in the year 2000. Trends just at the beginning of their rise, or even worse beginning to compound, where this is the time to act. Is there any way of identifying them, and if so, is there anything we can do? Or, are these trends similar to inequality, something that can only be reversed by significantly instability?

I suspect I’ll be referring back to this post a lot, particularly since there are a lot of examples I didn’t even touch on. I’ll cover one of them in my next post.


This is my new record for the longest post. If you like in depth (or rambling) writing, then consider donating. If you don’t like that sort of thing, then how did you ever end up here?