The Hangovers Come Easier
It seems not all that long ago I could go out on a Friday/Saturday, pound down like 4 pints of Guinness before dinner, consume a couple bottles of wine during dinner, then have 4 or 5 more beers afterwards and then cap it off with some brandy or maybe scotch. Sure, the pain the next day was severe, but hell I'd earned it! But nowadays, as I age, I find a few beers and half-a-bottle of wine can pretty much ruin my day.
And so it seems with our economy. Let's take a look at our GDP growth over the last 50 years. From 1962 thru 1969 we had an amazing 8-year run where we averaged 5% annual growth*. We then slowed down in early '69 and the economy sputtered about for about 2 1/2 years. We had by then entered into our inflationary period, but at least when the economy got on track we grew pretty hard. For example, in '72 and '73, we grew over 5% per year, but then hit the doldrums of '74 and '75, which, in combination with Watergate, brought us the Democrats' most dominant period in Washington.
The late '70's are known for hyper-inflation, but there were also some real gains as well. From 1976 thru '79, the economy averaged over 4% growth. But then we hit the wall in 1980, and thru 1982 we hit some hard times. The the "Reagan Revolution" ushered in another pretty good 7-year run, averaging close to 4.5% annual growth. The Bush administration was doomed by the dormant economy of 1990 thru 1991. But then, as all good Republicans know, the economy grew again in 1992 (at the same time Clinton and his lapdogs in the press were obsessing over the Worst Recession Since the Great Depression). The Clinton years started out slow, but thanks to the dot.com boom of the late 90's, he had a nice 7-year run averaging about 3.7% each year.
But notice the pattern - over 5% annual growth during the good times in the 60's, about 4.5% in the 80's, and 3.7% in the 90's. So during our good runs, we're building up less growth each decade (the 70's were a mess, as everyone acknowledges). So how did our latest "run" match up? "Run" hardly describes it. Just counting the last 5 years, we averaged less than 3% growth. Even the entire decade of the 70's, good times and bad, averaged over 3%. So here we are, in a new recession, only 7 years after the last one, and a measly 2.5% annual increase in GDP to show for it in between. Like the pathetic binges I try to muster up on weekends, the hangover hardly seems worth it.
So is it just pure Bush-administration mismanagement, or some more fundamental, growth-suppressing force at work?
*This, and all other quoted average growth rates, are simple arithmetic means of annual GDP increases.
UPDATE: Thanks to the Derb at the Corner for the link and Corner readers for some thoughtful comments. I think we're trying to solve a problem that is a bit "above our pay grade." But there are some clear trends that are hard to discount. I don't want to sound like I'm "blaming" anyone, but the fact is that the proportion of the population that is Hispanic has grown substantially since the 60's, and since Hispanic median income is about 70% of non-Hispanic whites', there is an obvious drag there. It's also hard not to consider the effects of freer trade. More international competition as well as off-shoring of manufacturing cannot have helped. Finally, the rise of consumerism - in particular, the expansion of mass credit, is a suspect in possibly reducing our investment in durable, tradeable goods in favor of non-tradeable services and imports.
7:04am EST: Another obvious culprit we all missed: the rising cost of energy. How many billions of dollars were diverted from technological progress in the West to build shiny palaces and casinos in the Near East? On the other hand, the decimation of our space program was well on its way before the first OPEC actions as the Left was determined to derail technology in favor of whatever it is that the Federal bureaucracy has been doing over the last 40 years.
I might try to look into this more to if there's any data to support these guesses - though no promises - I have a life, dammit!
FYI - the inspiration for this post was Krugman's recent "Hangover Theory" column and Steve Sailer's ridicule thereof.
And so it seems with our economy. Let's take a look at our GDP growth over the last 50 years. From 1962 thru 1969 we had an amazing 8-year run where we averaged 5% annual growth*. We then slowed down in early '69 and the economy sputtered about for about 2 1/2 years. We had by then entered into our inflationary period, but at least when the economy got on track we grew pretty hard. For example, in '72 and '73, we grew over 5% per year, but then hit the doldrums of '74 and '75, which, in combination with Watergate, brought us the Democrats' most dominant period in Washington.
The late '70's are known for hyper-inflation, but there were also some real gains as well. From 1976 thru '79, the economy averaged over 4% growth. But then we hit the wall in 1980, and thru 1982 we hit some hard times. The the "Reagan Revolution" ushered in another pretty good 7-year run, averaging close to 4.5% annual growth. The Bush administration was doomed by the dormant economy of 1990 thru 1991. But then, as all good Republicans know, the economy grew again in 1992 (at the same time Clinton and his lapdogs in the press were obsessing over the Worst Recession Since the Great Depression). The Clinton years started out slow, but thanks to the dot.com boom of the late 90's, he had a nice 7-year run averaging about 3.7% each year.
But notice the pattern - over 5% annual growth during the good times in the 60's, about 4.5% in the 80's, and 3.7% in the 90's. So during our good runs, we're building up less growth each decade (the 70's were a mess, as everyone acknowledges). So how did our latest "run" match up? "Run" hardly describes it. Just counting the last 5 years, we averaged less than 3% growth. Even the entire decade of the 70's, good times and bad, averaged over 3%. So here we are, in a new recession, only 7 years after the last one, and a measly 2.5% annual increase in GDP to show for it in between. Like the pathetic binges I try to muster up on weekends, the hangover hardly seems worth it.
So is it just pure Bush-administration mismanagement, or some more fundamental, growth-suppressing force at work?
*This, and all other quoted average growth rates, are simple arithmetic means of annual GDP increases.
UPDATE: Thanks to the Derb at the Corner for the link and Corner readers for some thoughtful comments. I think we're trying to solve a problem that is a bit "above our pay grade." But there are some clear trends that are hard to discount. I don't want to sound like I'm "blaming" anyone, but the fact is that the proportion of the population that is Hispanic has grown substantially since the 60's, and since Hispanic median income is about 70% of non-Hispanic whites', there is an obvious drag there. It's also hard not to consider the effects of freer trade. More international competition as well as off-shoring of manufacturing cannot have helped. Finally, the rise of consumerism - in particular, the expansion of mass credit, is a suspect in possibly reducing our investment in durable, tradeable goods in favor of non-tradeable services and imports.
7:04am EST: Another obvious culprit we all missed: the rising cost of energy. How many billions of dollars were diverted from technological progress in the West to build shiny palaces and casinos in the Near East? On the other hand, the decimation of our space program was well on its way before the first OPEC actions as the Left was determined to derail technology in favor of whatever it is that the Federal bureaucracy has been doing over the last 40 years.
I might try to look into this more to if there's any data to support these guesses - though no promises - I have a life, dammit!
FYI - the inspiration for this post was Krugman's recent "Hangover Theory" column and Steve Sailer's ridicule thereof.
posted by ziel | 11/10/2008 07:49:00 AM
35 Comments:
"So is it just pure Bush-administration mismanagement, or some more fundamental, growth-suppressing force at work?"
Now what could that fundamental, growth supressing force be?
Don't even think about suggesting demographics. We all know there's strength in diversity.
"So is it just pure Bush-administration mismanagement, or some more fundamental, growth-suppressing force at work?"
Diversity is our strenth, thats why Al Gore lives in Belle Meade Tennessee, the nation's 9th wealthiest city, which is as lily-white as a KKK rally. Im sure its good for our economy too.
You know, it would be FUNNY to have an all-academic "Jeapordy" Olympics in which academic teams of mathematicians, scientists, engineers competed on teams based on race. I wonder which groups would dominate this event as some groups have dominated track and field. Mathematical ability outdoes running ability as far as generating wealth is concerned.
Growth Suppressing Force (TM) is extracted from the vital juices of every taxpayer and bottled in Washington for distribution to bureaucrats and favored victim groups.
More government, more regulation, more grasshoppers per ant = slower growth.
Size of government? National debt? Those are the most likely from among a few good candidates. Of course, I'd like to see the growth indexed to inflation/the value of the dollar. That wouldn't probably help the last couple of years, but it might provide a more meaningful growth track.
The Blackadder Says:
I'm sure there are a variety of factors at work here, but would note that it's perfectly reasonable to expect growth rates to decline as an economy gets bigger.
If a country's GDP is around 100 billion, then an expansion of 5 billion will get you a very respectable 5% growth rate. On the other hand, if GDP is around 1 trillion, then even an expansion four times as big will only generate a paltry 2% growth.
I've got to think that technological innovation isn't as significant anymore as it was in 196h and 20th centuries.
Sure, we've got Moore's Law almost effortlessly carrying us along in the computer realm, but read old science fiction books to see what they projected for the future: a continuation of the trend toward ever faster transportation.
Which hasn't happened. We don't have flying cars or rolling sidewalks or jet backpacks or colonization of Mars.
Things look a lot worse if you look at real GDP per capita. America's rapidly growing population means that it needs a very rapidly growing GDP to keep up.
As things stand, we're losing ground to many of the other advanced economies.
"thats why Al Gore lives in Belle Meade Tennessee, the nation's 9th wealthiest city, which is as lily-white as a KKK rally."
His daddy did filibuster the Civil Rights Act, back in the day.
One thing a lot of people leave out too, is the competition is more fierce today. Let us face it, in the '60s a lot of nations were still dealing with post-WWII devastation and instability. Japanese products were considered cheap junk and laughed at, the good stuff was from the USA. Now, the legacy of WWII is well behind us and many of those economies (including those held down due to the Cold War) are now in play.
One cause could be diminishing returns of the computer and the internet revolutions. Yes, chips and boxes are getting faster and cheaper, but efficiencies in software (and what it does) haven't kept pace. Software creation is still more like the work of an artisan or small workshop, than of assembly line. What software does hasn't markedly improved at the same rate(at least at the small business unit level) since Excel (or before that, Visicalc) came into being years ago.
A new technology, such as efficient solar cells might re-invigorate the growth rate, but that's a hope, not a promise.
We also need to restore our manufacturing sector! Peter Schiff and Jim Rogers have said this over and over (and over and over) again. I'm sorry but you cannot sustain an economy on just consumption, debt and where citizens with the highest IQs are raised to be "creative" (I've mentioned this many times on Steve Sailer's blog). To be honest, same goes for Western Europe. Time to look East to Asia where they still do all of that icky manufacturing....
Try matching growth of GDP to the growth of average house prices in the DC area.
Given the amount of immigration, it makes sense to factor in population growth also. That is, with working age population swelling due to immigration, the per capita GDP would be that much more depressed.
It is probably more useful to look at productivity growth than at total GDP growth, and at trends over longer periods rather than five year bits. Check out:
http://faculty-web.at.northwestern.edu/economics/gordon/Groningen_Maddison80th.pdf
So is it just pure Bush-administration mismanagement, or some more fundamental, growth-suppressing force at work?
Of U.S. Children Under 5, Nearly Half Are Minorities
Wednesday, May 10, 2006; Page A01
washingtonpost.com
Whites will be minority group by 2042, Census predicts
Thursday, August 14, 2008
mcclatchydc.com
I'd also pay particularly close attention to page 11 of this PDF file [a chapter from the Statistical Abstract of the USA]:
http://www.census.gov/prod/2007pubs/08statab/pop.pdf
[Page 11 is "Table 8", but note that if you click on the bookmark for "Table 8", it actually takes you to "Table 7".]
Not only the relative number - but also the ABSOLUTE number - of Caucasians* in the USA is in free-fall, plunging from about 16M in the 45-49 age group, down to about 11M in the 0-4 age group, and we still aren't certain yet whether we have winnowed down to a core of Caucasians who will breed at replacement rate fertility, or whether the total number of Caucasians will continue to decline even further until we do finally reach that core of fertility [assuming such** a core even exists].
Murray & Herrnstein tried to warn y'all about this a good 15 years ago, but none of y'all wanted to listen.
Chickens. Come. Home. To. Roost.
Whatever.
*PS: Note that the situation for Asians in the USA is even worse, which is not suprising for anyone familiar with world demographics [nihilism having a much firmer hold in the Pacific Rim than in the USA (Caucasian) Heartland]:
List of countries and territories by fertility rate
en.wikipedia.org
IQ and the Wealth of Nations
en.wikipedia.org
**PPS: Cf Power and the Evangelical Womb.
PPPS: In fairness to the Blacks & the Hispanics, the growth of the USA would necessarily be slowing even without their presence to hold us back - you simply cannot sustain a growing economy in the face of a nihilistic population hell-bent on self-extinction.
It's the baby boom. That generation was massively productive. The economic booms coincide with their most productive years in the workforce. Since they didn't have enough kids, they are not being replaced in the workforce by equally productive workers. Their retirement will be a continual drain on the economy from here on out. Senior care will be one of the biggest industries within a few years.
The growth rate in unskilled Hispanic immigration is an obvious culprit. Hispanic income is about 70% of the non-Hispanic white average. Since the early 60's, the Hispanic share of the population has gone from about zero to 13%.
Globalization/free-trade has also become more prevalent since that time. As was pointed out, we didn't have much competition abroad until the 70's, and China didn't come into play until the 90's. We certainly did not have ~$700b trade deficits.
Or how about the rise of consumerism, which has also grown along with our slower growth?
It's the baby boom...
Except that the strongest growth occurred while the bulk of them were in grade school and the oldest were not even out of college.
1) Measures of inflation are not so objective that you can really adjust these GDP figures with the exactitude necessary to show that the apparent decline is real. How do we know what the "real" price of medical care is, adjusted for quality differences since 1960? (Any improvement in quality may mean higher prices aren't really inflation.) And how do we come up with our market basket of goods to measure? It is based on past purchases, and carried forward. Inflation will be radically lower if we look at current purchases, and extrapolate backward, which is no more or less legitimate, but gives strong price decreases if we imagine everyone buying a mainframe in 1970, to be roughly equivalent to today's PC. For more prosaic items, consider that fish used to be the cheap meat, then beef, and chicken most expensive. Now it is the other way around (and people are eating more of the cheaper meat). Naturally, older baskets of goods included more fish; a current basket should include more chicken.
2) I believe population growth is slower now than in the 1960s. (Certainly native population growth is.) So by per capita figures, I don't expect we'd see the same decline in growth rates.
"But notice the pattern - over 5% annual growth during the good times in the 60's, about 4.5% in the 80's, and 3.7% in the 90's. So during our good runs, we're building up less growth each decade (the 70's were a mess, as everyone acknowledges)."
Why do the seventies get such a bad rap? Admittedly there was clearly something going wrong with the economy - a nasty shock to optimism of the fifties and sixties - but in terms of inflation-adjusted GDP growth, the seventies were virtually the same as the eighties and nineties:
Decade | Total growth
1940-50 | 71.9%
1950-60 | 40.8%
1960-70 | 50.8%
1970-80 | 36.8%
1980-90 | 37.8%
1990-2000 | 38.0%
The difference between 36.8% and 38.0 is minimal; no reason to declare one the Decade of Doom and the other a decade of renewed prosperity. But the stock market returns were lousy in the seventies and great in the eighties and nineties - that's probably what's behind the mythology.
intellectual pariah
IP - your point about the bear market in the 70's is probably a big part of the gloom that accompanies that decade's memories. Also, it didn't have a good run - it went bad then good then bad then good then bad again in succession. The 80's, on the other hand, had two wicked recessions in 1980 then 1982, followed by some real humdinger years. The 90's had a mild recession followed by mostly mediocre growth. So you're right, the seventies as a decade weren't terrible overall - at least compared to the two decades later.
But what we haven't seen since 1984 is a 6% growth year. Is that kind of growth spurt a thing of the past?
dwpittelli - the gdp growth numbers are of course in inflation adjusted dollars, but I take your point that how inflation is measured matters and is somewhat controversial. And yes the quality of cars and consumer electronics is far better today.
As for population growth, it seems fairly steady over that time. Here's what I come up with:
60's - 13%
70's - 12%
80's - 10%
90's - 13%
00's - 9% thru today, so figure 11%?
But when it comes to adult population, the 60's and 70's had a much higher growth rate.
See here.
Our economy cannot keep growing at 5%. In 100 years, that level of growth would be roughly 700%, or seven times more than it is today. In America, a level of consumption seven times greater than today is barely comprehensible.
Worldwide growth needs to stay high, because so much of the world is effectively destitute; but growth in the US economy will be naturally constrained by the practical limits of a person to consume.
E. Ireland: Our economy cannot keep growing at 5%. In 100 years, that level of growth would be roughly 700%, or seven times more than it is today. In America, a level of consumption seven times greater than today is barely comprehensible.
Not if we had flying cars and moving sidewalks and robotic servants and artificial organs and colonies on Mars and clanking replicators in space - as Steve Sailer said above, just read some science fiction and see what our low growth rate is cheating us out of. I mean, was it really so important that we decimate our space program and instead build shiny, awesome gambling meccas throughout the world?
I agree w/ E. Ireland. Growth rates are going down (from 5% to 4% to 3% to 2% etc) but, like the growth of an expanding new company, growth rates go down naturally. Google, home depot, etc., for example, had phenomenal growth rates in their beginnings-- but that sort of thing is unsustainable for the long term, before settling down to a steady-state. As a giant gauge, I suspect the same is true of the US economy.
E. Ireland: "Our economy cannot keep growing at 5%. In 100 years, that level of growth would be roughly 700%, or seven times more than it is today. In America, a level of consumption seven times greater than today is barely comprehensible."
You assume that the growth must come in large, resource or energy dense products. But the growth can be located in other areas, and yet be as real to us as heavy industrial or agricultural products.
Imagine how impossible it would be for a scholar in Medieval society to imagine that some day we could have 100 times his time's wealth, given that half of GDP would have been food in his time. (How much can future people eat? How will they find enough rocks and stonemasons for every man to have his own castle? -- when that means each mason must also have a castle?)
Existing industries eventually become mature, and become a smaller and smaller percentage of a growing economy. While our GDP may be 100 times that of a peasant, and our food and housing are fabulous by peasant/medieval standards, we do not consumer 100 times as much of the products a peasant consumed. Instead we have the internet. And we drive around listening to the radio, as once only a king could travel (slowly) with a coach and marching band, when labor was cheap and technology unaffordable or unavailable.
Not if we had flying cars and moving sidewalks and robotic servants and artificial organs and colonies on Mars and clanking replicators in space - as Steve Sailer said above, just read some science fiction and see what our low growth rate is cheating us out of.
I think you have it back to front here. Growth rate is a measurment of such progress, not some magical number that causes such progress. Perhaps aritficial organs and colonies on Mars were not realistic, and that is why we don't have the high growth rate that having them would create.
I mean, some science fiction involves faster-than-light travel, but I believe that we're no closer to figuring out even a theoretical way to do that than we were 20 years ago.
I'll concede that faster-than-light travel is not possible. But surely a Martian colony is entirely feasible? the commenter above opined that 5% per year growth would mean 700% more consumption in a century, and that's not even imaginable. So maybe these things aren't possible today, but it could be possible in the foreseeable future, but not at the rate we're going now.
As the old cliches go, necessity is the mother of invention, virtue, and -- economic growth? Perhaps the diminishing of need has been a factor in our economic cooling. When life was more challenging and "stuff" was less accessible, there was more of an incentive for productivity. Given the increased wealth of Americans over the last decades and the ever cheaper goods made possible by free trade and Third World slave workers, we need not work as hard. Why toil away when the good life is ready for you?
"I'll concede that faster-than-light travel is not possible. But surely a Martian colony is entirely feasible?"
We obviously don't need FTLT to have colonies around the solar system. We should have a large Moon base by now and at least an outpost on Mars. "Supercomputers" aren't needed for planetary space travel, the Apollo missions and the Soviet lander on Venus showed that. But instead of conquering the stars we have spent untold trillions on NAMs with nothing to show for it, of course. Meanwhile NASA is worried about global warming.
You have ticked me off several times in the past, ziel, but I have to say that you are one of the very few bloggers I have come across who acknowledges that this country is in SEVERE decline on several fronts, and is willing to offer some ideas on how we can begin to reverse this decline. So kudos to you!
I wasn't suggesting that FTL travel was necessary for solar system colonization, jsut pointing out that the fact that certain things have been predicted by science fiction writers and because they are an extrapolation of current progress, does not make them realistic.
And I do not concede that FTL travel is impossible. I just pointed out that we don't know where to begin looking for whatever would make it possible.
True we shouldn't use s.f. as a guide to what our society should apply its resources to. But had we been able to push things along at a bitter clip over the last 30 years, we'd probably have much more pronounced technological advances (beyond iPods, cell phones and flat screens).
Ziel and DWPittelli make some excellent points in response to my first comment. Ziel is right that growth has been unnecessarily limited by investments in end-stage consumerism, such as entertainment and iPods. Shifting to more investments in R & D and exploration would bring us higher growth rates.
DWPittelli is right that consumption of specific items, which may remain relatively constant over time, still varies as a % of our overall consumption.
Consequently, it is entirely possible for us to "consume" 7 times more value in 100 years if the technology level grows enough to make it possible.
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