GDP growth has been on a great many people’s minds lately, and the quarterly results have generally been mildly disappointing for the last few years. A closer examination of the makeup of the US GDP might, however, reveal some further truths about the economy and why the employment situation hasn’t improved significantly. The situation is worse than we are led to believe.
The first bit of context that is needed is that anything below 2% annual growth in real GDP (inflation removed) is an effective loss for the average citizen. A few reasons for this exist:
- Growth in population: The population of the United States was growing at approximately 1.2% annually 20 years ago, which translates to an eligible workforce that is growing by approximately 1.2% annually today. In other words, the GDP now has to support more people, so it needs to grow to accommodate.
- Improvements in productivity: Every year we do things a little better / with fewer people. What may have taken 10 cashiers a few years ago only takes two now. That business is still a part of the economy, but growth in other areas is needed to give those displaced people jobs.
- Change in the labor force: An increasing percentage of the eligible labor force now looks for employment. Think back to the 50s when primarily men worked. Now women are expected to be in the workforce also. Sure, that demographic shift has already largely happened, but not for everyone, and it continues.
So, GDP growth of 1.6% is really a loss for average worker. That alone explains why the unemployment picture has not dramatically improved over the last few years. But what of the source of recent growth?
The figures provided pose another concerning issue: the growth in the economy over the last four years has essentially been entirely from the growth of government (which spends their money predominantly in the US economy). Think about how alarming that is. The private sector has essentially locked up, and we know that means it is effectively still contracting relative to ordinary workers. The source of this problem could be any number of things, from government interference to global headwinds, but it is a discussion for another day. What I would like to focus on is what this false growth means to us:
- The government is expanding the economy with money from their coffers… which they don’t have.
- In order to spend that money, the government must either borrow against the future and run up the debt, or increase the money supply (which dilutes American savings and wealth).
- The money that is being used for this shell game is going to have to be repaid at some point. We are trading success now for problems (with interest) later. We are essentially bubbling our economy. That always works…
- Something is dreadfully wrong in the private sector. Whatever the problem is, we need to undo what has caused it or do something to help it out. A nation that relies on public spending for all its growth will collapse, so let’s not be that nation.
The whole point of this is that we remain in a recession, but politicians have dressed it up to look like some sort of recovery (and they can’t even make it look like a good one). Knowing politicians, they will surely keep running this game until a hard reality sets in. Hopefully wisdom will prevail over illusions once the people stop letting themselves be fooled.