Thursday, July 9, 2015

Slow decline

When discussing the slow decline of the United States, there are two inflection points that seem to come up a lot.  One is the era around 1973 with the oil crises, and the Vietnam War debt Bretten Wood gold standard crises.  These are rather obvious flashpoints.  But the 1980s also come up in a variety of economic figures, and that is what we have here.

Another Look at U.S. GDP Growth (pdf p. 6)
Jeremy Grantham, GMO Quarterly Letter, February 2014

U.S. GDP growth had a wonderfully long run on a remarkably steady 3.3% trend line, from about 1880 to 1980 (see Exhibit 2). Although admittedly nowhere near recent Chinese growth, the duration and consistency was remarkable. Annual growth of 3.3% for a hundred years will multiply your income by 26 times! But 1880 to 1980 appears, with hindsight, to have been the Golden Century. In the 20 years from 1980 to 2000 that followed the Golden Century, the growth of GDP slowed materially (and was skewed to the top 10% and 1% in a way that had not been seen for 70 years), but still the country was compounding at a solid enough 2.8% a year, a rate that in a century would still compound to 16 times. For the last 13 years, in contrast, the growth has really slowed – to only 1.4% a year, and this despite a considerable bounce-back in capacity utilization since the bottom of the financial crash in 2009. To put it into perspective, 1.4% a year turns a dollar of income in 100 years not into $26 or $16, but into $4! 

And the referenced chart:

Note that even this "slow" 1.5% growth was done during a period of increased government (at the front and back end), business, and private debt.  It is not clear how long the inflation-free version of that type of spending will be available to us.


PioneerPreppy said...

I still maintain that due to enron accounting and phoney figures not to mention counting government spending which really isn't GDP worthy that we are still actually in negative GDP growth overall.

russell1200 said...

Pioneer: There are some accounting issues, but I don't think that is the largest issue. The real problem is the huge increase in debt at the same time that growth is declining.

What I would say is that the (limited) growth is real, but that it is also borrowed. We are in better position (by a ton) than the Greeks, but the payback won't be fun.

Humble wife said...

Boy oh boy payback won't be fun. It is going to get hard soon. I do not know how long that our nation can withstand this.

russell1200 said...

Humble: And recall that at least in many possible scenarios, we are much better off than most.