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.
mjperry.blogspot.com
Of course even "a hiccup" in long term growth is a big thing, and a shorter term basis it doesn't look so much like a hiccup.
But the important point is "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." If we have "catch up" growth with extra growth coming out of the recession (as sometimes happens) then in a decade or so the contraction won't mean much. If (more likely IMO) we merely return to the long run growth rate and the negative growth from the recession in a sense has a permanent impact (no "catch up", we grow at the same x% but from a base that is y% smaller, thus having an economy that is always y% smaller than it otherwise could have been), then the recession will still probably be mostly forgotten by the time people who lived through it are gone, if not long before then.
But if the already existing problems with debt, future entitlement obligations, combined with a reaction to the deficit of further increasing the size and scope of government, lowers longer term economic growth, than the recession will have helped triggered something far worse than itself. |
