Sunday, December 31, 2023

Does the difference between a 1.44% and 1.56% annual growth rate matter?

See This Stat Could Transform How You View Economic Growth by Josh Zumbrun of The WSJ.

He talks about GDP per working age person instead of GDP per capita being a better way to view economic growth. He says:

"But when you use GDP per working-age person, the difference all but disappears. Japan grew 1.44% compared with 1.56% for the U.S. over the same period." (from 1990-29)
Yes, that is a small difference. But over 29 years it can add up. I found Real gross domestic product per capita from FRED (Federal Reserve Economic Database from the St. Louis Fed). Not the same thing that Zumbrun is talking about, but similar.

In 2017 dollars, Real GDP per capita was about $40,000 in the USA in 1990 (and per working age person it would be higher so the difference I will highlight below would be even larger).

What if the USA and Japan were both at a GDP per working age person of $40,000 in 1990?

Growing at 1.56% per year, the USA would be at $62,664 in 2019. Japan, growing at 1.44% would be at at $60,552.

The USA is ahead by more than $2,100. That makes a big difference to the average family. So the answer to the question in the title is yes. And again, I used a low starting figure of $40,000. GDP per working age person would have been higher in 1990 in both countries.

If it had started at $50,000 in each country in 1990, the USA would be about $2,600 higher in 2019.

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