I want to back up another thing that Paul Krugman said. This time about long term growth. There is a wide spread sense among public officials and even a number of economists that there are things we either can or should do to prepare set the US up for strong growth over the long term.
This isn’t a liberal or conservative thing. Yes, you here lots of conservatives talking about government spending, taxes and the like. But, you also heard the President during the townhall talk about life long education, infrastructure, etc.
Yet, either the government has been amazingly consistent in providing the right balance of these goods, or they just don’t matter that much. Because long term growth has been incredibly consistent, even including the Great Depression and WWII.
Here is the real US GDP on a log scale (straight lines are constant growth rates)
Though the Great Depression was horrible at the time after it and the War time bounce back were over the economy simply resumed the same path as if nothing had happened. Great Depression. Massive World War. The New Deal. The coming of the income tax and then the raising of it to stratospheric rates. The rise of labor and fall of organized labor. Entry of women in the work force.
All of it and you can barely see a dent. Some one has probably addressed this in the economic literature but from what I can tell GDP growth is steadier than GDP per capita growth and much steadier than GDP per worker growth. That’s deeply fascinating.
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Sunday ~ July 10th, 2011 at 7:54 pm
JC
Isn’t long term GDP growth simply driven by population growth? The steady growth of overall GDP doesn’t seem very surprising, as long as some minimum standard of living is maintained for almost everyone.
Sunday ~ July 10th, 2011 at 8:05 pm
Curt Doolittle
Well, Krugman notoriously only looks at US data post 1914, not prewar european data, which his where we historians see a different set of possibilities.
Aside from that, as JC says above, GDP growth is just a function of population growth.
So I’m not sure that this is meaningful.
Sunday ~ July 10th, 2011 at 8:10 pm
Curt Doolittle
PS: I’ll volunteer to have someone fix your wordpress page template so that the comments show up on the left and under the article, rather than under the sidebar. Casually looking, there are currently three errors in the styles.css stylesheet. But it looks like fixing it also requires a change to the actual template.
You post interesting topics and it’s a shame it’s a bit messy.
Cheers.
Sunday ~ July 10th, 2011 at 9:26 pm
JazzBumpa
No, GDP growth is not a simple function of population growth. GDP and GDP/cap curves are similar but not identical. In general, deviations from the best fit line are due to economic factors, not population changes, though the post war baby boom is a remarkable exception.
Karl – you are being distressingly simplistic. You throw a straight line across a data set and think it must hew to it. That is an optical illusion. A close look – even on your chart – shows that GDP growth has been sliding, almost continuously, since the 60′s, and now is disastrously low. The only real exception is the 90′s. Make of that what you will.
Here, I demonstrate the reality. Please have a look, and check the included links. I welcome your feedback. Bottom line is – we’re pretty much screwed.
http://jazzbumpa.blogspot.com/2011/05/gdp-revisited-part-1.html
Alas,
JzB
Sunday ~ July 10th, 2011 at 11:18 pm
Rick Russell
> deviations from the best fit line are due to economic factors, not population changes
I think that was the point. If you don’t break it down per capita, you’re hooking into the overall population trend and that will make anything look like “steady growth”. Karl made a similar claim about a year ago that prompted me to create this graph.
Sunday ~ July 10th, 2011 at 9:57 pm
Becky Hargrove
I’ve just returned to blogging after eight months absence, so am interested in the “what is growth really” discussion that seems to be going on. No one argues anymore that we don’t need growth (that was crazy), but no one can quite pin it down, what it actually is. Is growth what people need? Is it what people could provide but can’t get a job to fulfill unmet need? Perhaps growth is the places people do manage to link up productively even when money is not involved.
Sunday ~ July 10th, 2011 at 10:24 pm
Matt D
I’m curious what the curve looks like for other developed economies, like those in the EU, or countries like China and Japan.
Monday ~ July 11th, 2011 at 4:20 am
rjs
it’s all been dependant on plentiful, cheap energy…but our EROEI is declining…when it gets to 1, growth stops
Monday ~ July 11th, 2011 at 5:35 am
i.kitov
The evolution of real GDP in the USA has an exponential component which is absent in other developed countries – permanent population growth at a rate of 1% per year. If to exclude this component and use real GDP per capita there is no exponential trend. Actually, the trend is linear over time and the current level of real GDP per capita in the U.S. is above this trend not below it – http://seekingalpha.com/article/273556-is-u-s-economy-above-or-below-long-term-growth-trend
In terms of economics, one should use GDP per capita to characterize real economic growth. The growth in working age population has been decelerating since 2005 and this is one of the reasons why real GDP has not been recovering fast.
Monday ~ July 11th, 2011 at 11:52 pm
JazzBumpa
ivan -
I agree that GDP/Cap is the right thing to look at for certain types of analysis. However, I strongly disagree with your contentions that it is linear rather than exponential, and that we are above trend.
Your best fit line through the chattery YoY growth data is meaningless. You can throw a best fit straight line across anything. By way of illustration, your straight line through the cumulative data set is not as good a fit as an exponential line would be. Give it a try. Your contention that recent years are a return to trend is based on looking at the wrong kind of trend line. The right way to look at these things is on a log scale – to see if THAT is linear. Then you can talk about deviations in a meaningful way.
I did that here.
http://jazzbumpa.blogspot.com/2010/10/us-economy-is-dying.html
I invite you to look at my post and tell me where I have gone wrong.
Cheers!
JzB
Tuesday ~ July 12th, 2011 at 3:18 am
i.kitov
Thank you for the link to your post. Your position on income disparity and resource misallocation as the driving forces behind the deceleration of real economic growth is clear. These are common economic arguments but there is no quantitative statement to discuss.
I agree that no interpolation is convincing if you have one example. Just to make sure that all developed countries reveal teh same lineqr time trend in GDP per capita please take a look at my older post http://mechonomic.blogspot.com/2011/05/1000-arguments-against-solow-growth.html
or paper in the Journal of Applied Economic Sciences:
http://ideas.repec.org/a/ush/jaessh/v4y2009i2(8)_summer200961.html
Tuesday ~ July 12th, 2011 at 11:50 am
Long Term American Economic Growth | Brandon M. Seifert
[...] According to this graph, “GDP growth is steadier than GDP per capita growth and much steadier than GDP per worker growth. That’s deeply fascinating” says Karl Smith. That is deeply fascinating, actually. A main focus of studying economic growth is to discern how it affects the standard of living within a specific economy. If a population grows as economic growth develops, the standard of living does not always increase. The fact that economic growth in America has maintained such a constant rate of growth despite the massive depression during the Great Depression and all of the recessions since attests to the strength of the American economy, regardless of what many people may think. Read the rest of the article about this graph at Modeled Behavior – ‘Long Term Growth’ [...]
Wednesday ~ July 13th, 2011 at 9:50 pm
Dismayed
I’m new to this blog, and I won’t be here long if this simplistic “analysis” is representative of the content. There are more meaningful measures of well being, such as the labor participation rate. On that count, modern capitalism is a dismal failure. As for the trend line in the article – 1960 – 1980 is above trend, so let’s go back to the tax rates of 1970.
Monday ~ August 15th, 2011 at 7:16 am
the __earthinc » Blog Archive » [2411] Malaysia’s long-run growth, 1955-2010
[...] There is a famous graph depicting how real growth of the economy of the United States of America has been remarkably constant over time. It is remarkable in a sense that history deviates little from such constant growth rate. I was reminded of this after reading a post by Karl Smith at Modeled Behavior. [...]