This morning I took a table of GDP figures from the BEA and worked out the real year on year GDP growth in the United States from 2001 through 2010. I won’t bother posting my results here—they’re pretty boring. Someday I may stumble across some good charting software but even that wouldn’t help much with the presentation of this information—it’s still boring however presented. These aren’t identical to my figures but they’re pretty close.
The bottom line is that (using the BEA figures) we’ve averaged 1.8% real GDP growth for the last ten years and growth has ranged from right round 3% to less than -3%. Let’s get right to my observations and questions.
Both the Ryan and Obama (revised) budgets assume growth a lot higher than the growth we’ve experienced for the last decade. We’ve been in a bubble for the last decade. In fact it was during a bubble that had followed hard on the heels of a previous bubble. IMO bubbles do lasting harm to the economy via deadweight loss.
What level of GDP growth do you expect over the next few years? What level of real GDP growth do you expect over the next few years? If you expect real GDP growth in excess of 1.8%, where will it come from and why will it exceed the average level over the last decade?
What got me thinking along these lines was John Taylor’s graph of the differing budget plans independent of GDP (it’s the second graph down in the post). That’s a pretty fair analog of the the plans under a zero growth assumption, too.
You can still see the spending binge of the past few years but the upward trend makes it harder to visualize.
Translation: “Showing the data in this more honest manner would have made my argument a lot less dramatic and exciting.”
Oh, and in answer to your question: I expect less. Real GDP growth rates have been slowing in this country for a long time. We should stop pretending it isn’t happening.
To my eyes the graph doesn’t support either the Congressional Republicans’ or the president’s story of the last and next few years. But, coincidentally, it does support mine: we’ve been eating the seed corn.
I think that we’re consuming far too much and not investing nearly enough. The just pre-dot-com growth (in my view) was the outcome of more than a decade of enormous investment finally bearing fruit. The next growth spurt won’t just require maintaining that level of investment over a protracted period, it will require even more investment.
Redubbing consumption as investment, as the president and his colleagues are predisposed to do, won’t cut it. Spending beaucoups bucks on healthcare for people over sixty isn’t investment; it’s consumption. Most healthcare other than basic public health measures, innoculating children, and so on is consumption.
Higher education in the general case isn’t investment either although in the specific it might be. A doctorate in Byzantine art is consumption; a doctorate in materials science is investment.
” a doctorate in materials science is investment.”
Excellent. Genius son is leaning towards materials science at Carnegie this fall, if wife can bear to let him travel that far.
Steve
To my eyes the graph doesn’t support either the Congressional Republicans’ or the president’s story of the last and next few years. But, coincidentally, it does support mine: we’ve been eating the seed corn.
Oh, I completely agree. But that argument won’t get you an op-ed column in the Journal or the Times; it’s far too honest.
As I understand Ryan’s explanation of his budget, by simplifying the tax code (reducing deductions, credits and assorted loopholes), he’s creating more growth by eliminating dead weight loss. I don’t know how scientific the assumed result might be, but certainly it would make sense that raising rates without simplification will result in less growth than simplification, even while reducing rates to maintain revenue neutrality.
It was scientific enough for them to project an unemployment rate of 2.8% with their plan.
Steve
steve –
“Genius son is leaning towards materials science at Carnegie this fall, if wife can bear to let him travel that far.”
That makes my heart warm. Although my undergrad degree was a balanced extractive/physical/mechanical metallurgy program, my MS was far more mechanical/materials science oriented.
You probably already know this, but Carnegie is a very a good program. Others top rated to consider are, naturally, MIT, Northwestern, Cal B, and Uof IL. Don’t know how those fit with your geography, but its coast to coast.