Population-Consumption Model v4

Economics Overview

The new version of my Population-consumption model (PCM) begged for an economic interpretation, and the result turned out to be as novel and predictive as the other parts of the model. As detailed on the economics page, the key concept is what I call a "happy environment."

I see an economy as a cultural tool whose purpose is to enable people to acquire and use resources to maximize their satisfaction with life (happiness). The PCM simplifies this to solving the problem of matching people to "environments" that are best suited to providing their wants and needs, where an environment is a theoretical construct that embodies all of the characteristics that affect the happiness of any one person. When someone "occupies" an environment, it provides some fraction of all of their wants and needs; that fraction is the mathematical definition of happiness.

Few people are totally happy, and few environments are immediately available for use. Over the course of a year, a typical interval for observing what's meaningful to humans, our population moves and alters available environments (what I call "inhabited environments"), disassembling and assembling parts as necessary, so people can occupy them and maximize the happiness they can experience with them. In terms of the PCM, this is the essence of economic activity, and the economy's goal. Afterwards, on average, a fraction of the population could be totally happy, and the environments they occupy would be "happy environments." Of course, the actual distribution of happiness is more complex, especially since people and environments are not really interchangeable (though some may be similar). If our economy works properly, this number is as high as it can be; or put another way: there's no waste.

I stumbled into this while trying to understand how two key measures of the global economy could be derived from the PCM. Gross World Product, or GWP, quantifies world economic activity, and is proportional to the square of the number of happy environments. Wealth measures the size of the economy, and is proportional to the cube of the number of happy environments. Studying these relationships, I realized that the economy could be thought of in terms of three basic dimensions, each numerically equal to the number of happy environments, but representing a different characteristic of the economy. Simply: one deals with actual environments; one deals with manipulation of those environments; and the last deals with the virtualization (representation as money) of the other two.

Since the economy depends on population and happiness, I used the projections of those quantities over time by the PCM to see what might happen to the economy. Not surprisingly, both GWP and wealth tracked with the peak and fall of population and happiness projected by my "worst" and "expected" scenarios, and rocketed upward to a maximum along with the "best" scenario.

A recent report on global wealth highlighted the huge amount of wealth inequality in the world, a problem that has rightfully taken center stage in the news and public debate. I had already used idealized statistical distributions of environments and people to derive how happiness would vary in the world's population as those distributions changed over time according to the PCM's projections. I adapted the model to project the distribution of wealth across the population using my calculated values for happiness and number of people (the components of happy environments).

My results didn't match the most celebrated conclusions in the report. I realized that I had derived an "ideal" distribution, based entirely on happy environments. While the overall size of the economy was right, the huge difference between the wealth of the richest few percent and most of the rest of us was clearly based on something totally different.

One variable has the range to explain the large variation in wealth distribution: ecological footprint (ecological resources per person per year), which I've been using as a proxy for consumption. The footprint per unit of happiness varies linearly with the footprint, which is the reason why there's a limit to the average happiness that a population can achieve, and thus the number of happy environments it can have. I've calculated the happiness limit to be 0.82, and the maximum number of happy environments as 21.6 billion, which is also the maximum size of the population.

While the average happiness can't exceed the limit, individual happiness can. In such cases, footprint becomes negative, which I interpret to mean that as "virtual": it has no physical reality. In an economy, however, that virtual footprint can be counted as equivalent to a real one, and ours apparently does just that. I successfully approximated key results of the report by having the PCM allocate wealth using both happy environments and the magnitude (absolute value) of the footprint.

With this extension of the PCM into economics comes a whole new set of observable consequences of our pursuit of happiness and the limits we are facing in that pursuit. I will be exploring these in future writing as development and testing of the PCM continues.


-- Bradley Jarvis

February 10, 2014

See also:

Happy Environments (blog post)

Population-Consumption v4 Main Page

Technical Description

© Copyright 2014 Bradley Jarvis. All rights reserved.