Summary: Friday’s news about Q2 confirmed that America is mired in secular stagnation. Here is the worse news, unmentioned in the newspapers. It should electrify Campaign 2016, giving it real meaning — beyond the circus of personalities. That will happen only if you see what is happening and act. If each of us as individuals sees and acts.
Pictures tell the tale: Compare growth in real GDP since the 2007 peak
Total GDP up 10.6% . Per capita GDP up 3.4%. Over 9 years!
The news about Q2 real GDP was terrible: up only 1.2% SAAR (seasonally adjusted annual rate). The YoY change more clearly shows the trend (less noise): also up 1.2%, far below the slow 2.2% average of 2012-2015. Secular stagnation tighten its grip on America, as it has on Japan and Europe. There is no certain, easy or fast cure.
People often complain that GDP does not match the economics they see around them. That’s correct — it’s an abstraction. But also we do not live by national GDP. Per capita GDP is closer to what we care about: it has grown only 0.5% during the past 4 quarters. Since the rich (the top few percent) take most or all of that, most American’s are losing ground (real median household income is down 7% since 1999, last available data). High rates of immigration plus slow national growth is a toxic combination.
Conclusions
This — and the war — are the big issues facing American (but not the only serious ones, of course). They are seldom mentioned in Campaign 2016 — except for brief promises of miracles to come. Instead we get a circus, as seen in both Conventions. Personal attacks, heart-warming schmaltz, and balloons and music.
The campaigns are designed by experts using the same science that gives us commercials, films, and TV. No surprise that the campaign is as informative as the Transformers movies. Like the Transformers movies, we loved the Conventions.
This is the problem. Our leaders have realized that we are like dogs. Alpo and chew toy keeps us happy, while they run America and harvest the bounty produced by its people, natural resources, and modern technology. When we change, becoming involved in politics (as other than consumers choosing from the menu), they will change.
For More Information
If you liked this post, like us on Facebook and follow us on Twitter. See all posts about economic growth, about secular stagnation, and especially these…
- Why America’s growth is slowing, and a solution — Imagine bringing June Cleaver from her 1957 home to today’s equivalent; she’d be astonished at our lack of progress. Look at how we’ve underperformed futurist Herman Kahn’s 1967 expectations for the year 2000.
- Larry Summers gives us the bad news. Worse, the only solution is more of the same.
- Do we face secular stagnation or a new industrial revolution?
- The IMF warns us of economic stagnation & suggests fixes. We should listen.
- Ben Bernanke sees the great slowdown in technological progress.
- The Fed sees years of slowing growth. Prepare for years of political turmoil.
- Trump & Clinton ignore America’s too-slow economic growth. We can change that!
The latest and best book about this
The essential reading to understand this aspect of modern America — shaping our future while we sleep — is The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War
“In the century after the Civil War, an economic revolution improved the American standard of living in ways previously unimaginable. Electric lighting, indoor plumbing, home appliances, motor vehicles, air travel, air conditioning, and television transformed households and workplaces. With medical advances, life expectancy between 1870 and 1970 grew from forty-five to seventy-two years. Weaving together a vivid narrative, historical anecdotes, and economic analysis, The Rise and Fall of American Growth provides an in-depth account of this momentous era. But has that era of unprecedented growth come to an end?
“Gordon challenges the view that economic growth can or will continue unabated, and he demonstrates that the life-altering scale of innovations between 1870 and 1970 can’t be repeated. He contends that the nation’s productivity growth, which has already slowed to a crawl, will be further held back by the vexing headwinds of rising inequality, stagnating education, an aging population, and the rising debt of college students and the federal government. Gordon warns that the younger generation may be the first in American history that fails to exceed their parents’ standard of living, and that rather than depend on the great advances of the past, we must find new solutions to overcome the challenges facing us.
“A critical voice in the debates over economic stagnation, The Rise and Fall of American Growth is at once a tribute to a century of radical change and a harbinger of tougher times to come.”
Naive question, but if GDP per capita is just total GDP/population why the divergent rates between the two metrics if population growth rates remained constant? Is there a different definition of GDP per capita used?
Roamer,
“why the divergent rates between the two metrics if population growth rates remained constant?”
The two series would not diverge if the population did not change (i.e., the population growth rate was zero).
Thanks did not know if the real formula was more complex for Gdp/capita. Did not realize population growth was so significant, must be close to .7%. Does a zero growth GDP/capita typically signal recession?
Roamer,
Population growth has been running at roughly 1.1% since 1980, falling to roughly 0.75% since mid-2010. See here: https://fred.stlouisfed.org/series/POP
“Does a zero growth GDP/capita typically signal recession?”
A recession is very roughly a drop in GDP (the NBER’s definition is more complex), so a drop in gdp/capita is often associated with a recession — as they are related dynamics.
Your post implies that less or slower growth in GDP per capita is bad, as though we need for GDP per capita to continue to increase, and even a slow down in growth is bad. To what level of GDP do you think is sufficient?
Steve,
Go find a poor neighborhood. Ask them.
Thanks for the data and definition reference. I’m confused though as how secular stagnation clearly proven ought to ignite real political action when it doesn’t seem we have a clear cause nor cure for the problem?
roamer,
“secular stagnation clearly proven ought to ignite real political action when it doesn’t seem we have a clear cause nor cure for the problem?”
(1) Social stress results from a problem. Whether or not there is a cure is irrelevant.
(2) While we don’t have consensus on a cure, there are both palliatives. A few examples…
(a) Borrowing at near-zero rates to repair, upgrade, and build economically useful infrastructure is a no-brainer. We can build useful infrastructure, even if it doesn’t generate near-term economic returns (e.g., better sewage treatment facilities and other green infrastructure, parks & recs, better schools).
(b) Copying the sensible practice of other nations by limiting immigration to high-return people (by education or other resources).
(c) Reducing inequality to better distribute the fruits of what growth we have.
(d) Increasing pubic investment in both basic science and applied science (e.g., new energy sources).
Roamer,
I forgot to mention — these are excellent questions. You are going to the heart of this issue!
A powerful insight from a reader
When populations are increasing, you need more real GDP per capita than population growth – because you are not just expanding the economy to keep up with the population, but you need massive capital investments.
Suppose you have one family living in a house – they pay for maintenance and utilities. Now add another family – you double the spending on maintenance and utilities, and you have to add extra costs for building a second house, and if you need to switch from septic tanks to a centralized sewer system, even more costs on top of that. Doubling the population requires, at least in the short run, that the economy more than double! Unless you let things slide and allow living standards to quietly degrade, which is what we are doing…
You also need to consider that, as population densities grow, the costs of rents and fresh water etc. go up, which adds to GDP – but not, of course, to the standard of living.
That’s why the United States, with a population growth of maybe 1%/year, needs (at least) something like 5%/year economic growth to stay even. It’s why third world countries with 3%/year population growth, need 8% or more economic growth per year just to avoid collapse, and forget about progress…
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