Surprising US historical growth rate statistics

May 04, 2016

It's always interesting to make predictions based on your theory of economics before you see if the data support it. Here's the exponential growth of our economy -- in terms of GDP per capita -- from 1790 to 2015.

United States per-capita inflation-adjusted GDP growthIt's clear that per capita GDP has increased steadily and exponentially. Liberals might point out that their programs didn't stop GDP growth and made life better and fairer for millions; conservatives might argue that if liberals had not taken us off gold standard, instituted the income tax, built a huge federal bureaucracy and increased regulation we would have done even better;and the resulting reduction in poverty would have done more than all these economically crippling programs. Not to mention more freedom! Yay freedom!I would have assumed there was a decline in growth rate, but it would have been moderate at worst, and worthwhile.I was not expecting what I found.Data SourceMeasuring Worth is a web site that collects economic data and makes it available. Its goals, founder and advisors are listed on the About page.

There are two missions of this site. The first is to make available to the public the highest quality and most reliable historical data on important economic aggregates, with particular emphasis on nominal (current-price) measures, as well as real (constant-price) measures. The data presented here on the United States, the United Kingdom and Australia, have been created using the highest standards of the fields of economics and history, and they were rigorously refereed by the most distinguished researchers in the fields. The second is to provide carefully designed comparators (using these data) that explain the many issues involved in making value comparisons over time.

I know the work of a couple of the economists, and without going through the entire list I can say that they range from pretty liberal to pretty conservatives. Regardless of orientation, data is data, and it seems to match up with other sources.The site has a time series for GDP, inflation rate and population from 1790 to 2015, from which one can calculate real (inflation adjusted) GDP and real per-capita GDP over that period of time. Clearly real GDP per capita is what we want to see. GDP growth in nominal terms does not take inflation into account, or does it account for population growth; cheaper money = more GDP with no one better off; more people = more money, the nation is stronger, but people may or may not be better off.PredictionI expected to see steady growth (and I did) with growth slowing in recent years for a lot of reasons. I expected to see significant differences between the growth rate under conservative and liberal administrations (or Congresses). I hoped that my side (liberal-ish) would perform well, but I expected that business-friendly administrations would increase GDP (possibly with a lag) and that those concerned more with social equity would slow economic progress as the price paid for social progress.The real per-capita GDP graph looks like this, but it doesn't tell you that much.

If you plot the same data on a log scale you can see the rate of growth over time, you see the first thing that surprised me: it's pretty much a straight line. Wiggly in places -- particularly the depression and WWII, but to first glance, straight.

Interestingly, there are lots of wiggles prior to 1930 and many fewer once the economy stabilized, post-war. And stable it is:

It's almost a dead straight line. Which means, kind of, that it didn't matter (that much) which party controlled the legislature or which party controlled the presidency. Or maybe it did matter, and things balanced out. We can look at this later in more detail.

Now look at this one (the trend lines are eyeballed, rather than being true regression lines. They are a) clearly different; and b) the rate of growth is clearly greater after the war than before.

So here we have the young United States, unburdened by modernity, growing at what is clearly a slower rate than the post war economy. Prior to WWII the economy had lot of variance due -- I think -- to periodic financial panics. Afterward, with a lot of new governmental bureaucracy in place, with millions taken out of the productive work force, with higher taxes, more regulation, you name the bad thing that was going on, the economy both grew faster, and with fewer bumps.Anyone who knows economics will tell you that volatility is bad, so the post war economy is double-good: faster growth AND less volatility.So whatever it is that is driving the United States economy, we have some evidence that there were two, distinct economic regime: the first from 1790 to about 1929, the second from about 1948 to present. A third, possible regime is the performance of the economy during the most recent period, from 2006 or so to 2015. We'll dive into that later. But first, in the next post, I'm going to let's look at "The Great Disruption" the period of time when we moved from one growth rate regime to the other.