Friday, September 25, 2015

Gross domestic product grew at a 3.9% annual rate in the second quarter-previous estimate was 3.7%!

See U.S. 2nd Quarter GDP Grows 3.9%: Revised estimate shows economy entered 3rd quarter on strong note, but output could be moderating from the Wall Street Journal. Excerpt:
"The U.S. economy entered the third quarter of the year on a strong note, but recent data suggests output could be moderating over the final six months of 2015.

Gross domestic product, the broadest measure of goods and services produced across the economy, grew at a 3.9% seasonally adjusted annual rate in the second quarter, the Commerce Department said Friday. The agency had previously estimated a 3.7% expansion.

Economists surveyed by The Wall Street Journal had expected a 3.7% rate of growth, unchanged from the earlier estimate.

The Commerce Department has been steadily raising its estimate for the second quarter. The agency first pegged growth at 2.3% in July, before twice revising it upward."
That might not seem like a big deal, just .2% more than before. In my macro courses we read a chapter in the book The Economics of Macro Issues. The chapter discussed how nations with common law systems, where property rights are better protected than in nations with civil law systems, have higher growth rates. I pointed out to my classes that even a small difference in growth rates ends up causing a very big difference in per capita incomes due to the annual compounding effect.

The table below shows how much per capita income would be at various rates after 100 and 200 years. Assume we start with a per capita income of $1,000. If we grow 2.0% per year, after 100 years it will be $7,245. At 2.1% per year, it would be $7,791 or about $700 more. That is how much that little .1% matters. The difference over 200 years is about $11,000. After 100 years at 2.5% per year, per capita income would be $11,814. That is $4,000 more than the 2.0% rate. Small differences in growth rates add up to big differences over time.

Using the latest GDP figures for another example, if we grow 3.9% a year for the next 30 years, and if per capita GDP now is, say, $50,000, it would reach $157,557. But if it only grows 3.7% for 30 years, per capita GDP would be $148,707. That is about $10,000 less than if we grow 3.9%

Per Capita Income After 100 and 200 Years At Various Annual Growth Rates (Starting With $1,000)

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