We’re all going to die soon. And global GDP is a trainwreck. Really. Let me explain via the Doomsday Argument (DA).
For those of you not familiar with the Doomsday Argument, it goes something like this: Imagine two urns, one containing 10 balls numbered 1 thru 10; and a second urn containing a million balls, numbered 1 thru 1,000,000. If you pull a ball at random from one of the urns and you obtain a "3", the likelihood, according to Bayesian prior/posterior probabilities, is much higher that you have pulled from the 10-ball urn than the 1,000,000-ball urn.
The argument is ordinarily used to posit that we are closed to Doomsday than we know. After all, if we assume the human are spread randomly through history, and you are here now making the observation — sixty thousand years and fifty billion humans into our collective existence — then what is the likelihood that we are closer to Doom, as opposed to being further away? Well, to think in urn-ish terms, you are either in a small urn — there will never be more than 100-billion humans alive — or we will go on to populate the multiverse — thus there eventually being hundreds of billions of people alive. Given that you are "merely" number 50-billion, the likelihood is that we are in the smaller urn (by the (loose) Bayesian reasoning above), so Doomsday is closer than any of us think.
Fun, huh? Before turning to Doomsday Argument criticisms, let’s do a markets variant. If you take global GDP as $18-trillion, or so, many wonder whether this is as good as it gets. Do we ever see much higher global GDP, like well above $30-trillion? Or do things begin to run down, as the catastrophists say, in a world of diminishing resources, warming, trade wars, strife, etc.
To put it in DA terms, we are comparing an urn with $30-trillion in GDP in it, and an urn with some much larger number. How big? Well, let’s say in 100-years that 75% of the world’s population of 9.4-billion has a GDP/capita of around what the U.S.’s is now, albeit inflated forward for 100-years at 1%. That would mean, by my rough calculations, global GDP of $873,360-trillion by the year 2109, which is a Big Urn indeed.
According to the Doomsday Argument, given that we are alive now and observing a global GDP of $18-trillion, the likelihood is high that we are drawing from the $30-trillion GDP urn as opposed to the $873,360-trillion urn. In other words, global GDP is unlikely to ever get to that much larger number, so sell, sell, sell, etc.
In case it’s not obvious, I’m (mostly) kidding in applying the Doomsday Argument to markets. For starters, there are many lethal criticisms of the Doomsday Argument, including that the key postulate that we observers are randomly distributed is simply untrue. That criticism and others are ably presented here. Feel free to add your own criticisms, or, if you really want to get your apocalyptic freak on, suggest that things are even worse than DA sorts say — or even propose that the world ended in 1962 and everything since has been a simulation.
Related posts: