lundi 29 mai 2017

Why vampire must be rich

Why vampire must be rich

This blog is not about if these mythicals creatures exist or not. In appearance, vampires looks like us. One of the main feature about these creatures is that they are immortal. With this single attributes, they must be rich.

This blog is rather about the fact that human are not immortal, but Humans, as a whole, are. They lived since roughly 2 millions years(1). Money was invented around 3 000 years ago(2).

Since Humans are immortal, why are they are not rich? Or rather, what can we do to be rich?

Why immortality brings richness

What immortality does to your finance? For starter, it makes your pot of gold explodes. A tenant of current economy is the power of compounded interest.
“One dollar invested in stocks in 1802 would have grown to $8.8 million in 2003, in bonds to $16,064, in treasury bills to $4,575, and in gold to $19.75. The CPI has risen by a factor of 14.22, almost all of it after World War II.” - Jeremy J. Sieger(3) 

From this, we deduce that the interest rate over this 200 years is on geometric average 8.32%(4)Ok, so a single dollar over 200 years is 8.8 million. 

One dollar saving, is let's say on the ultra spender side of saving. It makes sense that the average vampire would put a bit more to insure is financial future. At a meager saving rate of 5%(22$ per year vs average wage of 444$(6) per year in 1800) for 35 years and left this grow for the reminder of 165 years, that's a whooping accumulated fund of 2.76 billions dollars(5). This is more than twice Oprah worth in 2002. If he saved 10%(44$) saving for 35 years left for 165 years after it's that would be 2x more (5.5 billion). At a high saver rate of 15%, this is 3x mores (8.3 billion). 

Is 1$ a lot in 1800? It's actually not too big. Sugar would have cost 0.27$ per lb or 0.15 for 1 rum.(7) 

Thus without a doubt immortality brings richness.

Notes
(1) https://en.wikipedia.org/wiki/Homo_sapiens
(2) https://en.wikipedia.org/wiki/Money
(3) http://www.econlib.org/library/Enc/StockMarket.html
(4) 8.32%= 8 800 000^(1/200)-1.
(5) To make things easier let's split the calculation in 3 parts. Note that I will include a 0.268% wage inflation to be a bit more accurate.  A) the accumulation of 1$ per year from year 0 to year 35. B) the accumulation of a 1$ balance for 165 years. C) 22$ * A*B
A)  235.37 = ((1+((1+8.32%)/(1+0.268%))^(-35))/(1-((1+8.32%)/(1+0.268%))^-1))*(1+8.32%)^35
B) 533246= 1.0832^165
C) 2,765,480,084.= 22$ * A *B = 22*235.37* 533246
(6) For this, I've consulted American incomes 1774-1860 (Lindert, Williamson 2012) - http://www.nber.org/papers/w18396.pdf. On average, in 1800, one would make about 444$ per year. 
(7)https://hdl.handle.net/2027/wu.89071501472

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