Thursday, October 02, 2008

Two centuries of American real per-capita GDP growth

Chris Blattman has a message for all the pessimists out there:
This is the best estimate of real income per capita in the United States since 1820.

Over these years we had violent financial crashes of various types, bank panics, piles of recessions and a huge depression, many foreign wars and one enormous domestic war, had a central bank and didn’t, were on the gold standard and weren’t, had governments topple in scandal and multiple leaders assassinated, and what did it all amount to in the medium to long run? In per-capita income terms: Nothing. The overall trend does not bend or shift. Every bad year was followed by a good year that returned us to trend.

The US average growth rate of real per capita incomes over the last 190 years has been 1.8% a year, and the same rate over the last 10 years has been…. 1.8% a year.

Stare at that graph: The Great Depression was traumatic in countless ways, but astonishingly, it’s not clear that we are any worse off today than we would be if the whole thing never occurred. Anyone who made such a claim in the 1930s would have been scoffed at, but that’s what happened.
We may be headed for a tough time over the next few years, but we'll get through it. We always do. And no, it's not different this time.

Note: The graph is showing real per capita GDP growth. That is, per capita GDP growth adjusted for inflation.

13 comments:

  1. That is a ridiculous graph because wealth has been steadily moving toward the top 1 percent. The distribution of wealth is not evident through viewing that graph. Middle class wages have been losing ground and the poor even moreso.

    That is why McCain will be trounced in the next election.

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  2. Gary Anderson said...
    "That is a ridiculous graph because wealth has been steadily moving toward the top 1 percent. The distribution of wealth is not evident through viewing that graph."

    The graph is not intended to be a representation of income distribution. Calling it ridiculous for not measuring something that it is not intended to measure is ridiculous.

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  3. Credit growth was able to mask a major economic decline. We're leveraged now, that's why the graph looks even. Going forward you're going to see a severe dip.

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  4. keeps going up and to the right...

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  5. Most economists realize the GDP (at least, how it is currently valued) has been a less and less valuable tool for measuring real growth of the economy, since it doesn't take into account the many inherent problems with tracking economic factors like, oh, say - a bubble housing market. Every sale and resale at a higher and higher spiraling price counts as more growth in the GDP. And yet, even though the housing and financial markets were all experiencing exponential growth, the growth line in the graph is only steady, not matching the exponential growth of the individual sectors. That means that the exponential rise in "false wealth" that was so celebrated on the balance sheets of Wall Street was accompanied by an EXPONENTIAL DROP in real GDP in such sectors as health care, automotive, textile, etc. Now that the riches of the housing market and wall street have been shown to be complete shams, you'll see the GDP begin an exponential slide downward, since there have been nothing but losses in every other major industry. So much for the "steadily rising GDP". It's all smoke and mirrors.

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  6. anonymous said...
    Every sale and resale at a higher and higher spiraling price counts as more growth in the GDP.

    I'm pretty sure that only the sales of newly constructed homes are counted in GDP.

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  7. Good post James - its good to be reminded that in time, this too shall pass!

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  8. "The US average growth rate of real per capita incomes over the last 190 years has been 1.8% a year, and the same rate over the last 10 years has been…. 1.8% a year."


    While not intending to be a knock against you James, I am left wondering-

    What has been the rate of inflation over the last 190 years, or the last 20?

    If inflation has been only 1.8% per year then workers are treading water (breaking even),
    if inflation rates are 1.9% or more, then workers are losing buying power over time.

    Again, no insult aimed at you, just asking a technical question, thats all.

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  9. anonymous said...
    "If inflation has been only 1.8% per year then workers are treading water (breaking even), if inflation rates are 1.9% or more, then workers are losing buying power over time.

    It is 1.8% of real per capita growth. "Real" is economic-speak for "inflation-adjusted". So, if the inflation rate was 4% over the period, then the nominal growth rate would be 4 + 1.8 = 5.8%.

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  10. Wow, James, good work! this is an impressive trend. I would like to know more about this. Do you have any source? Thank you very much

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  11. Where can you find out up to date GDP trends? Looking around but having trouble finding the data.

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  12. I found some of the data, almost up to today at:

    http://www.measuringworth.org/usgdp/

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  13. The main reason your graph is flawed is because of the way inflation is measured. Inflation is not measured the same as it was 70 years ago or even 20 years ago. The official US numbers are doctored to give stats an illusion. Also 85% of the GDP is compromised of consumption. That graph is very misleading if the input data is modified WHICH IT HAS BEEN by the US GOV. Get a clue James.

    It doesnt take a genius to travel around the US and see the declining living standards of the population:

    falling apart infrastructure, healthcare and education costs spiraling out of control, dual income families unable to keep up with living costs. Keep living in your bubble dream land James.

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