Humans Can’t Wrap Their Minds Around This Economy
In a striking commentary on the bewildering scale of modern financial figures, Nvidia recently made history as the first company to achieve a staggering $5 trillion valuation, just ahead of Halloween. This monumental achievement was quickly followed by Tesla’s approval of a pay package for Elon Musk that could reach $1 trillion over the next decade. The sheer enormity of these numbers raises questions about our ability to comprehend such wealth. Jeff Sommer, a finance columnist for The New York Times, noted that the stock market’s explosive growth, particularly among a select group of companies dubbed the “Magnificent Seven”—which includes tech giants like Alphabet, Amazon, and Microsoft—has led to valuations that feel almost abstract. For instance, the S&P 500 has doubled in value since October 2022, while the combined market capitalization of these leading firms has quadrupled, largely driven by advancements in generative AI technology.
The implications of these astronomical numbers extend beyond mere financial metrics; they challenge our understanding of economics and governance. For example, when SoftBank sold its $5.8 billion stake in Nvidia, the amount was deemed significant in the news, yet it represented a mere fraction—one one-thousandth—of Nvidia’s overall market cap. This disconnect illustrates a broader trend in which the public struggles to grasp the magnitude of figures that end in “-illion.” Studies have shown that many people have difficulty distinguishing between large sums, leading to a diminished capacity for making informed decisions about economic policies. This lack of comprehension is not limited to the general public; even influential figures, such as politicians, often misstate financial figures, as seen in recent comments by Donald Trump regarding potential revenue losses from tariffs.
As we navigate an era marked by hyper-numbers, the challenge lies in understanding the exponential growth of wealth and its implications for society. The U.S. national debt has soared to an eye-watering $38 trillion, a figure so large it seems almost fictional. This growing disconnect between reality and the numbers we encounter poses a threat to democratic governance, as the ability to make informed decisions relies on a clear understanding of fiscal matters. While some have suggested radical measures, such as redenominating currency to simplify these vast sums, the reality is that these numbers will likely continue to escalate, leaving us grappling with their implications. As we hurtle forward into an increasingly complex financial landscape, the question remains: how can we effectively engage with a world where the numbers keep growing, faster and faster?
https://www.youtube.com/watch?v=uPgNzCUEE5Q
Numbers are too big now. Just before Halloween, Nvidia
made headlines
for becoming the first $5 trillion company in history. A week later, Tesla’s shareholders approved a
pay package
for Elon Musk that could be worth about $1 trillion in a decade. At a certain point, figures this large become uncomfortably meaningless. A million dollars is a lot of money. A billion dollars is a heck of a lot—so much that if you had it, you’d be a billionaire. Now try to imagine how rich you would be if you were pulling in $8 billion every month for the next 10 years, as Musk is effectively about to do. It’s impossible. “The numbers are so big, they are hard to comprehend,” Jeff Sommer recently
wrote
in
The New York Times
. And he’s the paper’s finance columnist.
Sommer was referring to the stock market, which has been on an outrageous tear, with the gains concentrated among a tiny number of unfathomably valuable companies. The S&P 500 has doubled since October 2022, which is impressive on its own, but the combined market cap of the
Magnificent Seven
—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—has more than quadrupled. These firms are all heavily invested in generative AI, a technology based on training computers to make connections among quantities of data that are completely beyond human understanding. Large numbers are generating large numbers.
Records are being broken before they’ve had time to sink in. Nvidia’s $5 trillion valuation last month surpassed the first-ever $4 trillion valuation, which was
also
achieved by Nvidia, in July. The planet didn’t even have a single trillion-dollar company until Apple hit that milestone in 2018. This was considered a big deal at the time. Now the equivalent of the most valuable corporation in history circa 2018 can be generated in three months.
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These wild numbers make all other sums sound trivial, even when they aren’t. On Tuesday, the Japanese conglomerate SoftBank disclosed that it had sold its entire $5.8 billion stake in Nvidia to fund other investments. That was important enough to make news
basically
everywhere
. But we’re talking about one one-thousandth of Nvidia’s market cap here. Is $5.8 billion a lot, or is it lunch money?
As a species, we aren’t ready for this. People basically can’t tell the difference between any number that ends in –
illion
, and the more zeros you add, the worse things get. One
experiment
at the University of Richmond asked a group of students and graduates to plot numbers on a line. Half of them thought it made sense to evenly space 1,000, 1 million, and 1 billion. Another
study
asked people to rate the effectiveness of proposed COVID-relief packages. Responses differed sharply when the options were presented in per-capita amounts (giving everyone $1,200 was deemed much less effective than $24,000) but hardly at all when they were presented as total amounts ($100 billion versus $2 trillion), even though the ratio was the same in each case.
As the numbers grow, our understanding of reality dims. This is true even for some of our most influential thinkers. On Monday, Donald Trump posted on Truth Social that the United States would forfeit $2 trillion in revenue should the Supreme Court strike down his tariffs. The very next day, the president
claimed
that the number was $3 trillion. Even the smaller number would, if true, have been enough to completely wipe out the federal deficit. In fact, the U.S. has raised only about
$200 billion
in customs duties in the past fiscal year. The total U.S. debt, meanwhile, has risen to $38 trillion, a number so self-evidently absurd that the mind resists dwelling on it. It must be funny money. If it weren’t, it could never have gotten so big.
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The prospects for democratic self-governance are not good. Raising and spending money is one of the most fundamental functions of government. If neither citizens nor their leaders can wrap their heads around these numbers, how will anyone make informed decisions about how the country is run? A trillion here, a trillion there, and pretty soon you’re talking real money.
Nor can our age of hyper-numbers be easily dismissed as the familiar product of inflation. Everyone grows up hearing about how cheap things were when our parents were kids—how you could buy a new Chrysler back then for the cost of a mattress today. Then you get older and have the same experience, puzzling over how movie tickets could possibly cost $16. But economic growth is generally understood to be exponential. The nature of exponential change is that it looks just like non-exponential change, right up until it doesn’t. Economists model growth as a constant percent, such as 3 percent annually. This sounds innocuous but leads to absolute numbers that elude our comprehension. If you plot out the value of an economy that grows by just a few percentage points a year, and you set a long-enough time frame, your chart will look like a plateau that suddenly explodes into a vertical line.
That is exactly what linear graphs of the U.S. stock market look like right now, which suggests that we have achieved escape velocity and entered the vertical part of the curve. (The geniuses who put historical stock-market graphs together tend to conceal this fact by using a
logarithmic scale
, which makes big jumps look much smaller.) The bigger the numbers get, the faster they grow in absolute terms. In just a few years, a $5 trillion valuation might sound as quaint as a $2,000 two-bedroom apartment in Brooklyn does today. The recent stock-market surge has brought about this moment sooner than it otherwise would have arrived, and a bursting bubble could defer it, but not forever. Nvidia could lose half of its value, and it would still be worth $2.5 trillion.
One solution, childish in its simplicity, is for the government to unilaterally deflate the currency by decreeing that all dollar figures will henceforth be reduced by an order of magnitude—that is, they will drop a zero—like a stock split on the dollar. This would render Nvidia a mere $500 billion company and buy us all some time to absorb that fact. This technique is known as redenomination. It has been used to reduce nominal prices in
countries
experiencing out-of-control inflation, but to my knowledge, it has never been deployed to ease the cognitive burden of a stock market that is performing too well. Alas, like all perfect ideas, this will never happen. Instead, the numbers will keep growing, faster and faster, and we will remain strapped against our will to this exponential rocket, hurtling into the Milky Way, which contains only about 400 billion stars, tops. But who’s counting?
