Tuesday, February 12, 2008

Stability Isn't Everything

Mark Perry (Carpe Diem) touts the stability of the U.S. economy:
The U.S. economy has become increasingly more stable over time.... Since 1985, real GDP growth has fluctuated in a range between 0 and 5%. Despite a slowdown, or even a recession, we are fortunate to be living in the most economically stable period in U.S. history.
Well, maybe not so fortunate. As I note here:
Had the economy continued to grow after 1907 at the 1790-1907 rate, real GDP in 2006 would have been $32 trillion, vice the actual value of $11 trillion [in year 2000 dollars].
The year 1907 marks the onset of the regulatory-welfare state (see this). The era of economic stability that we now "enjoy" has come at a very high price. It is the stability of imprisonment in a government-controlled economy. The result has been a diminishing rate of growth, accompanied by a rising rate of inflation:

Real GDP is nominal (current-dollar) GDP divided by the GDP deflator, a measure of changes in the overall level of prices for the goods and services that make up GDP. I derived five-year averages from the estimates of real GDP and the GDP deflator for 1790 through 2006, as provided by Louis D. Johnston and Samuel H. Williamson, "The Annual Real and Nominal GDP for the United States, 1790 - Present." Economic History Services, July 27, 2007, URL : http://eh.net/hmit/gdp/. UPDATE (01/30/08): The averages for 2005 include estimates of real GDP and the GDP deflator for 2007, as issued by the Bureau of Economic Analysis on January 30, 2008. [From "Is Inflation Inevitable?" (18 Jan 2008)]
Ignore the artificially high rate of growth from the early 1930s to the end of World War II. It reflects the recovery from the government-caused-and prolonged Great Depression, followed by the war-fueled "boom." Similarly, ignore the inflation spikes that coincide with the Civil War and World War I. The true story is told by the trend lines. Things were going quite well until the early 1900s. Then, thanks to "progressives" and their "reforms," government got into the act, in a big way...
Those who cannot remember the past are condemned to repeat it.

George Santayana, The Life of Reason