Economic growth is great because it helps improve the standard of living for everyone in society. So it is a minor tragedy that economic growth for the period 2001 to 2015 was dreadfully miserable.
The graph below tells the story:
This graph shows the annual growth rate of real GDP per capita (i.e., inflation-adjusted economic output per person) for the U.S. going back to 1951. Each data point represents the average annual growth rate for the prior 10 years. For example, the 1960 data point reflects the annual growth rate for 1951 to 1960.
A rolling ten-year average smooths annual fluctuations and shows trends more clearly. Compared to the normally quoted growth rate for total GDP, growth in GDP per capita removes fluctuations due to population growth and is a better measure of prosperity gains.
As you can see, the 2009-2015 data points stand out clearly for their wretched performance. They are the only 10-year periods over the past half century with growth rates of less than 1% per year.
Let’s break this into two time periods to illustrate just how bad 2009-2015 was. The average growth rate for the period 1951 to 2008 was 2.1%, much higher than the putrid 0.7% growth for 2009 to 2015. In other words, the 2009-2015 performance was two-thirds worse than the historical average! This is somewhat like scoring a 33% on a mid-term exam.
The only other ten-year periods even close to the recent poor performance occurred in the early 1960s and the early 1980s. But even those two instances were not nearly as bad. As you can see, in both cases growth did not drop below 1.3%, the weak growth lasted for only two or three years, and then growth sharply bounced back to good or excellent levels.
In contrast, the 2009-2015 period includes SEVEN consecutive years averaging only 0.7% growth, and it’s highly likely that 2016 will extend the string of poor performance. This represents unprecedented poor performance for the past six decades.
The Importance of Growth
All Americans – rich or poor, Democrat or Republican, young or old – should regard our recent economic growth as absolutely unacceptable. Growth matters! This is not just about sterile numbers. Growth improves the lives of real people by giving them more jobs, higher incomes, and innovative new products and services. Even a one percentage point difference in growth rates will multiply across decades to huge differences in our standard of living.
Growth is also the only way we can ultimately eliminate poverty. Even if you (mistakenly) believe that government programs are the best way to eliminate poverty, growth is still crucially important. Why? Because virtually every penny spent by government comes from the private sector economy, either directly or indirectly. If the economy grows, government collects more tax dollars to spend on anti-poverty programs.
Therefore, we should all be united in desiring greater economic growth.
What Caused Dismal Growth?
What caused the precipitous drop in economic growth over the past fifteen years? No doubt there are multiple factors. I’ll point out one. We know that greater economic freedom leads to higher incomes, and vice versa. Well, the unfortunate reality is that our economic freedom also declined over the same time period. According to the Fraser Institute’s Economic Freedom of the World Index, the US was the third freest economy in the world in 2000 but dropped to sixteenth place by 2014.
Coincidence? I think not. When government gets bigger, economic freedom shrinks and economic growth suffers.
In the interest of fairness, I want to be clear that the recent poor performance did not occur only on President Obama’s watch. After all, the 2009 data point represents performance for 2000 to 2009, which includes the Bush years. It is true that growth for 2001-2008 was weak at only 1.1%. But it’s also true that 0.7% for 2009-2015 was even worse than that low benchmark.
Also, while the period 2001-2008 both started and ended with a recession, harming growth for that time period, it’s also true that the 2009-2015 period should have benefited from a burst of growth that normally occurs after recessions. We have not seen a burst of growth because the recovery from the 2008 recession was historically weak.
The lesson here is that expanding the size and power of government harms economic growth regardless of whether Democrats or Republicans are in power.
I encourage you to enter comments or questions below. Two rules: 1) be reasonably polite, 2) address the issue and avoid personal attacks.