Years ago, I used to read the Economist.<\/em> \u00a0Eventually I became too busy to keep up with it, but I always enjoyed it when I could.<\/p>\n One of the last articles I remember (this was maybe in ’05 or ’06), China’s economy was being compared with India’s. \u00a0At the time, China’s growth was 8%, while India’s was 6%. Either rate would signify wildfire growth in a developed economy; I’d say Canada will be lucky to grow at 2% this year. However, the article said that India’s growth, while a very nice 6%, melted in comparison with China’s 8%.<\/p>\n As a math tutor, I thought about that comment for a moment. “Is 8% really that much more than 6% growth?” I asked myself.<\/p>\n The key is that it’s exponential growth. This year’s growth becomes a part of next year’s economy, which then grows again, so you get growth on growth on growth. That’s exponential growth: anything natural grows that way. My earlier article here<\/a> talks more about it.<\/p>\n Reading that earlier article, you’ll also encounter the law of 72, which states the following about an economic entity:<\/p>\n (growth rate)x(doubling time)=72.<\/strong><\/p>\n It’s an approximation, but a very good one.<\/p>\n Let’s compare India’s historic growth at 6% with China’s at 8% using the law of 72. Does 8% really “melt” the 6%? Well, what we can say is that, by the law of 72, India’s economy will double every 12 years, while China’s will double every 9 years. For simplicity, let’s imagine the economies begin at the same size. In 36 years, India’s will double three times (every 12 years), so it will be 8 times its original size. (2x2x2=8). In that same period of 36 years, China’s will double four times (every 9 years), reaching 16 times original size. (2x2x2x2=16). If they were the same size at the beginning, China’s economy, having doubled an extra time, is exactly twice India’s at the end of the 36 years.
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\nFrom that point of view, the difference in the growth rates is impressive.<\/p>\n