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Sunday, February 22, 2009

Correct me if I'm wrong

But something doesn't seem to add up here. Some guy named Spencer posting on Paul Krugman's and Matt Yglesias's blogs cites the following statistic in discussing whether economic growth was better during the 66 years between 1850 and WWI or the 63 years between the end of WWII and 2008.

Real per capita gdp growth
1800-1850…0.7%
1850-1950…1.4%
1950-2008…2.1%


Now, it's entirely possible that I'm missing something, but it would be interesting to know where Spencer got his numbers. Because, if one takes a look at the actual numbers from which real GDP per capita can be derived, using 2000 dollars, US GDP is reported as $43.92 billion in 1850 and $583.7 billion in 1916 when the US entered WWI. That's 13.3x growth in 66 years. Since the US population grew from 23,191,876 to 101,961,000 over that period, (4.4x), real GDP per capita rose from $1,893.77 to $5,724.74, or 3.02x.

That's more than twice the GDP growth in the post-WWII period where real GDP grew from $1,786.3 billion in 1945 to $11,671.3 billion in 2008. That's 6.5x growth in 63 years. So, the US economy grew less than half as much, although since the population also grew at a slower rate, from 139.9 million to 303.8 million (2.17x), the change in real GDP per capita, from $12,765.84 in 1945 to $38,414.59 in 2008, means that the total growth in real GDP per capita was basically identical over the two periods at 3x. But this means annual GDP per capita growth averaged around 4.5 percent, which is twice what Spencer is reporting for the post-1950 period and 4x 1850.

Anyhow, if I'm correct and GDP growth over both periods averaged 4.5 percent per capita, the GDP growth over the 1850-1916 period is arguably more impressive because GDP not only increased twice as fast but the period also spanned a very destructive civil war. The post-1945 period, on the other hand, was not only relatively peaceful, but also gave an unharmed and steroid-boosted American economy the benefit of selling to a world that had seen much of its productive capacity destroyed by WWII.

Also, I'm not sure how appropriate the use of a per capita statistic in the place of real GDP growth is anyhow. It seems to have been selected to reduce the impact of the historical GDP growth, and given the negative effects of immigration we've seen over the last 20 years, can anyone seriously argue that the addition of another 160 million immigrants would have necessarily increased recent economic growth? I mean, if that were the case, then why don't we just import all 160 million now... hang on, I think I just figured out how what passes for the mind of a Republican politician operates.

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