There's One Thing We Can Always Count On in the Long-Run: 2% Growth in Per-Capita Real GDP
Over the last 200 years going back to 1809, the chart above shows that the growth in real GDP per capita in the U.S. has been amazingly constant at an average of 2% year, with fluctuations around that long-term secular trend. The National Bureau of Economic Research has documented 33 recessions since 1857, including a few major ones that are easily identifiable in the chart above: a) three severe contractions in the 1865-1880 period following the Civil War (with the third one lasting more than five years) and accompanied by a 20-year period of below-average economic growth, and b) the Great Depression with two official recessions (August 1929 to August 1933; and May 1937 to June 1938) and a ten-year period of below trend growth in output.
Despite the vagaries of the business cycle, unexpected periods of recessions, a civil war, two world wars, a Great Depression, etc., there's one thing we can always count on in the long-run: 2% real growth in per-capita GDP, meaning that that output per person in the U.S. doubles every 35 years, or about twice during the average person's lifetime. There's nothing happening right now that will change that long-term trend, and for that we can be thankful.
11 Comments:
Mark,
I'm amazed that your data source contains inflation data back to 1809.
Any thoughts [or editorial comments] on
1) How the economic data [GDP, inflation, population] was collected then vs now? (i.e., how reliable is the 200 year old data?)
2) What has led to this amazingly consistent statistic?
Let's work to make the next two hundred years just as consistent.
"In 1940, 28 percent of American women were in the labor force and this percentage steadily increased to 60 percent in 1997."
Or
Keynesian economics has worked so well, since WWII, that per capita real GDP increased at a faster rate in the larger U.S. economy.
PT, yes i also was noticing how strong the economy was after FDR. absurdly high tax rates, unions, *socialism*, keynes, restrictive banking laws, the federal reserve, etc, etc, etc.
according to this blog, that shouldn't have happened.
[btw, i am NOT in favor of high taxes and unions]
bobble,
The U.S. economy grew after WWII despite those growth-restricting government actions you listed. Reasons for that growth are many, but include:
1. movement of housewives into the workforce, as Peak Trader just pointed out to you;
2. reduction in corporate tax rates and elimination of business "excess profits" taxes in 1946 and 1948;
3. 1946 and 1948 reduction of top marginal tax rates from 94% to 82%, still high but at least a move in the right direction;
4. growth in the working age population once the first Boomers graduated from high school;
5. development of computers by private enterprise, leading to huge productivity gains in both the private and public sectors.
As someone on another blog pointed out, the U.S. post-WWII growth was possible because Roosevelt died and the socialist wing of the Democratic Party could not find a politically powerful successor. I would add that Huey Long's assassination in 1935 eliminated one such potential socialist successor.
JetB:"The U.S. economy grew after WWII despite those growth-restricting government actions you listed. Reasons for that growth are many, but include: [can you show correlation for any of that stuff? ]"
you don't get it.
"absurdly high tax rates, unions, *socialism*, keynes, restrictive banking laws, the federal reserve, etc, etc, etc. " were in effect 1930's to 1980 and the economy did just fine.
as the chart shows: 2% GDP growth/year. just like any other period of economic history.
i'm *NOT* saying that FDR had the answer. i'm saying that all the factors that this blog says will kill the economy, didn't. that's a fact according to the chart posted by prof. mark perry.
in the light of economic history your theories "have no clothes".
No, Bobble, you don't get it. There were special circumstances - which I just listed - which offset the negative impact of high marginal tax rates. The Boomer impact, the computerization of work, the increased participation of women all boosted GDP and offset the dampening impact of socialization and high marginal taxes. Those special circumstances have ended. If we return to high tax rates and continue our slide into socialization, we cannot hope to maintain 2% per capita GDP growth.
Bobble, the U.S. did have very good growth after WWII for pretty much the reasons that Jet Beagle stated (Huey Long's death is very debatable). The U.S. pretty much had the premier position in world trade and access to cheap oil.
In the 1970s the cheap oil ended and in the 1990s the U.S. position as a premier exporter was strangled. What happened? The U.S. does not have the will or capacity to enforce trade agreements. Further, the U.S. has not adapted to world trade taxation issues and policy.
The rest of the global trading world has adapted a goods and services tax (Value Added Tax). Also the rest of the world has much lower corporate tax rates that keep falling (ex. Japan & U.S). For instance China has 25% rate vs. the U.S. at 35%+ corp. tax rate.
The U.S. has dramatically reduced personal tax rates but is radically out of step with a global economy. Radically different tax policy gives a way over a one-third advantage to virtually every other country in the world (10%+ corp. tax disadvantage and 25%+ VAT border adjusted advantage).
Quite simply, the U.S. doesn't have the will to enforce trade agreement chasms such as pervasive intellecutal property theft or currency manipulation. Nor, doe it have the leadership to change tax policy. 2% average growth won't be possible in a global economy without forceful and radical change.
"There were special circumstances "
can you prove that those circumstances actually did what you guys say they did. can you quantify the actual effect of each? i'll help you, you cant. no one can. its too complex.
every time your economic theories don't work as predicted, you guys trot out "special circumstances".
how about if i said "the reason why the years after the reagan revolution weren't a total economic disaster was globalization? i can't prove that's true [and i don't believe it's true] or quantify the effect, but you can't prove it's false.
using "special cirumstances" any theory can work.
i'll leave you with another one to come up with special circumstances for: "in 1932, the marginal tax rate on incomes between $100,000 and $150,000 was increased to 56% - more than a 100% increase in this marginal tax rate. What's more, the top marginal tax rate went to 63% on incomes in excess of $1,000,000. So, if you were a million-dollar earner in 1931 and 1932, your marginal income tax rate increased by over 150%"
industrialists should have gone Galt according to you guys.
yet: "In the four years ended 1937, real GDP excluding real federal government expenditures grew at a compound annual rate of growth of 9.0%. In the four years ended 1937, industrial production grew at a compound annual rate of 12.9% (see Chart 3)." Paul Kasriel - Northern Trust
spin away!
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I have to wonder--Japan is now in a 20-year period of below-par growth, with no prospects. Can a modern society, following a tight money policy, shift downward this normal growth trend?
Also, the USA now has about 8 percent of GDP sucked into the military-foreign policy complex, the VA and debt on previous military engagements. How long can we carry that monkey and keep growing?
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