August 2008

America's real growth rate from 2002 through 2007 ranked near the top of all countries on The Economist magazine's list of developed nations. The source for these charts showing real (adjusted for inflation) GDP growth is the Economist magazine's list of developed countries. It conforms closely with IMF data. To learn more about GDP, scroll to the bottom of this page.

While soft spots are inevitable, the U.S. economy has been healthy under the Bush administration thus far. In 2008 a collapsing real-estate bubble is causing trouble in the housing and financial services sectors. "Mortgages for everyone" clearly hasn't worked. Corporate america is still very healthy, but if the capital it needs for ongoing vitality is used to fix a crisis in the financial sector, the cancer will spread to "Main Street."

Keep in mind as you look at the information below, that unemployment also dropped to levels unseen consistently since the early sixties. Low unemployment trumps growth. The most important thing a country can do for its people is make sure that those who want a job can get one. If you doubt this, contact someone in Germany or France and ask whether they would prefer their economy or ours. Unemployment in the Euro Zone has averaged 60% higher than the U.S. since 2001.

The following charts provide a time-lapse lesson in economic stimulus policy.

2002

In 2002, the year after the Bush administration cut tax rates, the U.S. grew +1.5, which placed it in the top third of the pack. The U.S was recovering from a economy that was soft when Bush took office and was then pushed into recession after 9/11.

2003

In 2003, growth increased to 2.5%, making it fourth on the list of 15.

This is no small achievement, as it is generally harder for a large entity to grow by a certain percentage than a small one. See explanation at the bottom of this page.

2004

In 2004, the U.S. economy grew by 3.6%. You may remember the mantra from some of the political candidates: It's the "worst economy since Herbert Hoover." This claim differs from the facts so much that it is laughable.

As an aside, to put the reporting during these years in context, as 2003, 2004, and 2005 came to a close, the IMF and the Economist magazine showed the U.S. growing faster than all other developed countries. The charts and the Economist's raw data are here.

Some of these figures were later revised downward, but as they were published the US press reported a new poll seemingly each week indicating that Americans were "dissatisfied with the economy." Since informing the public about the economy is an important part of the press's responsibility, repeatedly broadcasting polls about Americans' disappointment with the economy amounts to publishing their own failing report card.

If one doesn't see the potential danger in this particular perception/reality gap, then it ought to at least be clear that the mere possibility that such an incredible discrepancy could exist between public opinion and truth, is in itself dangerous. Such a huge and widespread public misconception could obviously lead to grossly misguided national policy decisions.

2005

When the final numbers were in for 2005, two countries had grown faster than the US. Nonetheless, the US was showing consistent strrength.

2006 & 2007

In 2006 and 2007, the U.S. economy grew at the fairly healthy growth rates of +2.9% and +2.2%. But the pace of growth of a number of European countries moved ahead of the U.S. What happened? Europe, taking cues from U.S. success, cut taxes throughout most of Europe!

Summary

From 2003 to 2007, the U.S. economy grew faster than all but three countries on the Economist's list of developed countries. Two of the countries ahead of the U.S.--Australia and Sweden--are large commodity exporters and benefited from significant growth through price increases.

Another way to put U.S. growth in context is to compare it to the size of the Chinese economy. Real US growth from 2000 to 2007 was +20% (+48% unadjusted for inflation). The economy of China.was about 18% of the size of the US economy in 2007, in nominal terms. This means the US added more to its economy in seven years than China had created in its entire history with four times as many people. And we are "unhappy" with this?

If we don't stop whining and fixing imagined problems, we will create real ones.

What is Gross Domestic Product?

Gross Domestic Product (GDP) is simply the total value of all goods and services produced in the nation's economy. It is by far the most common measure of a country's economic growth. This is because over the long run the material standard-of-living correlates closely with the value of goods and services that a society produces.

Gross Domestic Product is the most important measure of economic activity, and real (inflation adjusted) long-term growth in GDP is the clearest signal of strength. For individuals to improve their income and wealth over time, the whole community must produce and earn more. As productivity increases, income and wealth increase for individuals as well.

It is often more difficult for a large entity like the U.S. economy to grow by a certain percentage than a smaller one. To illustrate, if something grows +2 units from 100 to 102, this represents an increase of +2%. If something grows from 10 units to 12, the same growth of +2 represents a +20% increase. The U.S. starts from a base that is already many times the size of most of the other economies on this list, so a small percentage growth actually represents a massive increase in actual wealth.

Standards of Comparison

Since there are developing countries with faster growth rates than the ones shown in these charts, we need to take a moment to explain how the countries on this list were chosen. The financial publication, The Economist, has for many years published economic statistics for two groups of countries--developed countries and emerging countries. The list shown here is the complete list of developed countries for which a year-to-year comparison is shown.

Comparing the growth rates of developing economies like, for example, India or Singapore, each of which grew 8% in 2007, but are a small fraction (8% and 1% respectively) of the size of the U.S. economy, would not give useful comparisons. These countries are able to grow faster because they are, for the first time, becoming a part of world trade. Thus they are able to grow more rapidly because they are simply allocating their resources more efficiently than before, and they are able to learn from and borrow upon the technology and business process innovations of the developed countries that have paved the way for them. We're quick to say, however, that China is a special case. Their phenominal growth is not sustainable. That is another subject.