Tuesday, January 05, 2010

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 β€” 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.

18 Comments:

At 1/05/2010 10:35 AM, Blogger juandos said...

Interesting...

Liam Halligan writting in the UK Telegraph (26 Dec 2009) a mostly gloomy article did note the following: In 1950, international trade accounted for only 8pc of global GDP. That share has since more than tripled – with values increasing 24-fold – due to a relatively liberal global trading regime created by the WTO...

Do you think Halligan's viewpoint is valid?

 
At 1/05/2010 11:46 AM, Blogger Bret said...

I think that the trend line in the upper chart is misleading. I'd be very surprised if its upward slope is statistically significant.

 
At 1/05/2010 11:47 AM, Anonymous gettingrational said...

From the article cited:TO put it bluntly, if the United States takes one step back and the rest of the world takes two steps forward, even in purely selfish terms we should consider accepting the trade-off, if only for the longer run.

Global trade is supposed to benefit the U.S. and its trading associates. It is obvious that the trading system is fixed for wealth transfer away from the U.S.

The U.S., as the tip of the spear for the spread of freedom around the world, is in grave danger financially. The mentality and philosphy of the author seems to have been twisted away from free markets and towards rigged markets.

 
At 1/05/2010 11:59 AM, Anonymous Benny The Man said...

Here in the USA, things are rotten, but the world is surging ahead.
The Far East will do especially well in the next 20 years. Invest there, live there if you can.
Global grwoth is becoming detached from USA growth.
The USA will muddle forward, or at least I hope.
But we have built into our federal government chronic red ink, and both parties have gigantic sacred cows beyond reproach (in their minds).
Just try telling a lefties that we are a nation of fatties and it is time to kill the Food Stamp program. Try telling a rightie that naval surface ships have been outdated for a half-century, and are dangerous--to their crews.
Can we get rid of the federal Department of Education? How about the Ag Department?
Corn ethanol, a farm subsidy in drag--can we kill it? No, the right-wing drinks ethanol, though it be an offensive intrusion into free markets.
No, no, no, no, no radical reforms, or even improvements, of anything!
Lifetime pensions for federal employees after just 20 years of service? Yes-siree, if they are soldiers.
The beat goes on.....

 
At 1/05/2010 12:02 PM, Blogger Walt G. said...

gettingrational,

How do you put the global tiger back in the bottle? And, even if you could, would it really be a good idea?

I believe we will need to learn how to live and prosper in a global economy.

 
At 1/05/2010 12:50 PM, Anonymous gettingrational said...

Walt, I want and believe in world trade. What needs to be put back back in the bottle and smashed is the rigged system that the U.S. faces in international trade.

Today, one in five workers is unemployed and one in five citizens needs food stamps to avoid being hungry in the U.S.

You can read about trade barriers to U.S. Goods and services here:.

 
At 1/05/2010 1:02 PM, Anonymous Benny The Man said...

Well, free trade has not exactly worked for Detroit.

Dr. Perry extols the virtues of free trade--but while safely ensconced at the University of Michigan, supported by taxpayers.

It is a puzzle--living standards were rocketing ahead in the USA in the 1950 and 1960s, when international trade was nearly irrelelvant.

Also, workers hear mixed messages--free trade is good, but also why benefits and wages must be cut.

We cannot afford the social safety net in a world of global competition, but must maintain a mighty and very expensive military to keep the world safe for trade.

No wonder so many find "free trade" a dubious boon.

 
At 1/05/2010 1:06 PM, Anonymous gettingrational said...

Trade Barrier Link

 
At 1/05/2010 2:09 PM, Anonymous Anonymous said...

The Far East will do especially well in the next 20 years. Invest there, live there if you can.

I will personally pay for your transportation if you promise to turn in your U.S. passport.

 
At 1/05/2010 2:33 PM, Anonymous Anonymous said...

Well, free trade has not exactly worked for Detroit.

Free trade hasn't worked for Detroit because Detroit, like much of Michigan, has been captive of the UAW. The auto industry is far from dead. Foreign companies now produce almost as many cars as the "Big 3" and pay their non-unionized workers as well, if not better, than members of the industry destroying union labor cartel. Further, they have not stolen tens of billions of dollars from U.S. taxpayers. Outsourcing is a two way street with many foreign companies choosing to move production to the U.S..

 
At 1/05/2010 2:43 PM, Blogger Walt G. said...

anonymous,

The transplants generally go to the states that offer the highest incentives, and those incentives are funded by the taxpayers. Estimates range between $100,000 to $300,000 per job. Everyone has their hand out nowadays.

 
At 1/05/2010 3:05 PM, Anonymous Anonymous said...

Sorry, Walt, but Michigan and other states have been giving incentives to the "Big 3" forever. Not to mention the "incentives" provided by the governments of the U.S. and Canada.

The workers at foreign firms have never asked me, as a taxpayer, for a handout. They do not ask me to guarantee their pensions. They do not ask me to finance the purchase of their products. They do not funnel tens of millions of dollars into the political system in an effort to corrupt it.

When the unions kill a company their members should be thrown out onto the streets to fend for themselves. We owe you nothing.

 
At 1/05/2010 3:24 PM, Anonymous Benny The Man said...

Anon:

I will likewise pay for your ticket, when you migrate to the Far East in search of better opportunties. I'll show you the ropes.

 
At 1/05/2010 4:30 PM, Blogger Walt G. said...

anonymous,

So they took your money without asking you. Is that better?

You might want to check how much money the transplants have contributed to the U..S. infrastructure over the last 100 years or so.

I will be happy not to spend my money at your establishment. Can you let me know where that is?

 
At 1/05/2010 5:47 PM, Anonymous Anonymous said...

You might want to check how much money the transplants have contributed to the U..S. infrastructure over the last 100 years or so.

The U.S. infrastructure was not built by unions and transplants pay taxes, just as those that work for them do.

Ask yourself why unions are avoided, by businesses of all kinds, like the plague. If unions provided any added value, if their workers were more productive or better skilled or if the "union built" label drew additional patronage you might have an argument. Instead, what you have is a sense of entitlement. You believe that by joining a mob and coercing compensation from an unwilling party you somehow achieve "justice".

I don't want your patronage, I just want you to get your hand out of my pocket.

 
At 1/05/2010 6:56 PM, Blogger juandos said...

pseudo benny says: "Well, free trade has not exactly worked for Detroit"...

Hmmm, well pseudo benny did you NOT understand the contents of this 13 minute video clip Dr. Perry posted?

It seems like your fellow travelers didn't work so good for Detroit...

 
At 1/06/2010 2:25 AM, Anonymous Mr. Econotarian said...

Here is global trade: Avatar made over $1 billion in the box office, but 2/3rds of that came from outside the US.

 
At 1/06/2010 9:57 AM, Blogger sethstorm said...


Ask yourself why unions are avoided, by businesses of all kinds, like the plague.

PATCO.
(More specifically the firing of it at the suggestion of Giuliani)

Once they got the signal it was fine to combat them, businesses did. The unintended consequences is that it became an indiscriminate weapon against any US citizen.


It seems like your fellow travelers didn't work so good for Detroit...

You mean the people who offshore jobs? Those fellow travelers? They sell our nation to the actual card-carrying Communist Party; their non-Communist, despotic system does not make it different.

 

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