Monday, September 07, 2009

Recent Contraction Has Been Little More A Than Hiccup in Decades of Sustained Economic Growth

The chart above shows annual real GDP per capita for the U.S. from 1929 to 2009 (estimated) using BEA data here for real GDP and Census data (here and here), and puts the current recession in some historical perspective (see a similar analysis here for UK). Despite a severe contraction, real GDP per capita will still be greater this year (about $42,000 in 2005 dollars) than any time before 2005, and that is based on second quarter real GDP, so the actual figure will likely be higher. It's also the case that:

1. Real GDP per capita this year ($42,000) will be more than 4 times the amount in 1940 ($8,832), and more than twice the amount in 1970 ($20,823) and almost 25% higher than just 15 years ago ($34,075 in 1994).

2. Nominal GDP per capita this year in the U.S. of about $47,000 (based on
2008 CIA data here) will be $13,600 per person higher than the European Union ($33,400), $12,800 per person higher than Japan ($34,200), $14,300 higher than France ($32,700), $10,400 higher than the U.K. ($36,600), $12,200 higher than Germany ($34,800) and $16,000 higher than Italy ($31,000).

As David Rawcliffe points out
on the Adam Smith blog (about the UK, but it applies equally to the U.S.):

The recent contraction has not been evenly spread across regions or industries, and the hardship for many has been terrible, but the bigger picture is clear: the recent crisis has been little more than a hiccup in decades of sustained growth.

We should maintain this sense of perspective not only in assessing the harm wrought by this recession, but in developing policy for the future. The living standards of the next generation will not be chiefly determined by the severity of cyclical fluctuations, but by the long-term rate of growth in the intervening years.

In responding to the current crisis, and to the wider ills of society, a brave and forward-thinking government will bear this in mind, and pursue goals that do not simply address the problems of today, but recognise that economic growth offers the best solutions to the problems of tomorrow. It will accept that short-term sacrifices are necessary for long-term gains. It will encourage competition and innovation; it will reduce taxation and spending, and eliminate subsidy. It will ensure a productive workforce by educating and training the workers of the future, liberalising the labour market, and demolishing the benefits trap. And it will stimulate investment through price stability and fiscal prudence.


At 9/07/2009 12:56 PM, Anonymous gettingrational said...

I was lucky to be born in the U.S. but I am ashamed to admit I have a lot of consumer debt. David Rawcliffe's thoughts are correct except that this is "hiccup". From Why You Should Get Comfortable with Slower Growth.

At 9/07/2009 1:14 PM, Blogger bix1951 said...

is it human nature to always complain and find fault no matter what is going on?
or is it just the media always putting a negative spin on everything?

At 9/07/2009 4:36 PM, Anonymous Anonymous said...

Beter yet run the chart back to 1860 and its even more astonishing. The late 1800's were a period of deflation caused by a supply glut and the effects of making the us into on market due to the railroads. As an example note how pre 1850 a lot of local stone was used in buildings but later stone came from a great distance. Cato had a paper up in 1999 point out the progress of the 20th century.
Also this points out the problem most don't know any history, how a lot of problems are the same basic issue that has been there since the US was founded.

At 9/07/2009 8:32 PM, Blogger al fin said...

Unfortunately, what goes up can go down. Particularly if the basic underlying rules of the economy are being changed beneath our feet.

Multi-trillion dollar budget deficits each year may well serve their purpose temporarily, but in the long run they put a strain on the fabric of the economy.

Do not make the mistake of assuming that the persons making all of the drastic changes in the basic rules, actually know what they are doing.

Complexity grows from a simple set of rules. If the rules change, you should not expect the same trends to follow, after the change.

At 9/09/2009 12:15 PM, Anonymous GregL said...

US personal income is skewed more than European nations. Thus using a median calculation rather than an average calculation (implicit in GDP per capita) should change the values.

Median values rather than average values are preferred when making inferences about population groups.


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