Last Decade Was a Big Success for Global Economy

From Tyler Cowen's NY Times article "Fruitful Decade for Many in the World":

It may not feel that way right now, but the last 10 years may go down in world history as a big success. That idea may be hard to accept in the United States. After all, it was the decade of 9/11, the wars in Iraq and Afghanistan, and the financial crisis, all dramatic and painful events. But in economic terms, at least, the decade was a remarkably good one for many people around the globe. If we look beneath the surface just a bit, the picture is a good deal rosier than we might otherwise think.

One lesson from all of this is that steady economic growth is an underreported news story — and to our own detriment. As human beings, we are prone to focus on very dramatic, visible events, such as confrontations with political enemies or the personal qualities of leaders, whether good or bad. We turn information about politics and economics into stories of good guys versus bad guys and identify progress with the triumph of the good guys. In the process, it’s easy to neglect the underlying forces that improve life in small, hard-to-observe ways, culminating in important changes.

In a given year, an extra percentage point of economic growth may not seem to matter much. But, over time, the difference between annual growth of 1% and 2% determines whether you can double your standard of living every 35 years or every 70 years. At 5% annual economic growth, living standards double about every 14 years.

MP: The charts above appeared recently on this CD post, and it seemed appropriate to feature them again to accompany Tyler Cowen's article. If the IMF's forecasts for world real GDP through 2014 are accurate, and if we consider the 12 years from 2003-2014, it will be a period of 5 years of above-trend growth (2003 - 2007), followed by a three-year period of below-trend growth including one year of negative growth (2009), followed by a four-year period of above-trend growth from 2011-2014. Looking at a longer period from 1990 through 2014, the world economy will add a full percentage point of real economic growth in less than 25 years, going from about 3% in 1990 to 4% by 2014. That will mean that output and living standards will double every 18 years very soon, a 25% improvement from the 24 years it takes for living standards to double with the 3% growth of the early 1990s.

The bottom chart shows world real GDP per capita in 2009 dollars, from 1981 to 2014, using IMF data for world GDP and U.S. Census Bureau data for world population. Following a 2.2% decline in per-capita real GDP in 2009, positive growth is expected to resume in 2010, as the long-term upward trend continues so that by 2014 real per-capita GDP will be almost $10,000, almost double the level of the early 1980s.

If we "look beneath the surface just a bit" as Tyler suggests and consider a long enough time period for some perspective, the recent financial and economic troubles will probably look rather insignificant in comparison to the long-term positive trends in global output and the resulting significant increases in living standards around the world.