US Economic History - Real GDP per Capita Growth

[Guy Berger]

I just did some research on historic US inflation and real GDP growth rates. It's amazing how much better run the US economy has been since WW2 -- the fluctuations used to be really massive (and probably unpleasant).

My first post has inflation history.

[The Magnificent Goldberg]

That's very interesting Guy. thanks. I wondered why there was such a steep decline towards the end of WWII. But then I realised that a per capita GDP chart for the US is going to be equally sensitive to changes in immigration as to changes in output. Many of the steep declines look as if they occurred at times of great immigration. Newcomers take a while before they're as effective at producing as the older hands.

So the absence of the wide swings seen before the war may simply reflect lower levels of immigration - or rather the smaller proportion (and lesser impact on the averages) of recent immigrants in the population - rather than better management on the part of the Government or the Fed.

You might want to set an immigration graph alongside the per capita GDP graph and see whether it suggests anything.

MG

[The Magnificent Goldberg]

A further thought while I was out having a ciggy: wouldn't the period while the West was being won have seen large increases in the Native American population of the new territories - people who were largely outside the money economy and who wouldn't, therefore, have contributed any (or significant) GDP?

MG

[connoisseur series500]

A further thought while I was out having a ciggy: wouldn't the period while the West was being won have seen large increases in the Native American population of the new territories - people who were largely outside the money economy and who wouldn't, therefore, have contributed any (or significant) GDP?

MG

Actually, I think they did contribute. They brought gold, furs, skins and Indian goods back East and bought supplies in St. Louis and Kansas City(guns, ammo, wagons, cookware, etc) which they brought West with them.

[Jazzmoose]

While the Native American population may have not contributed to the boom, remember, the settling of the west was a giant creation of wealth, through the gold rush (and more importantly, the services supporting it), the expansion of the railroads, and in general the creation of a new infrastructure. I can't imagine that the opening of the West could have possibly had a negative impact on the economy...

[The Magnificent Goldberg]

While the Native American population may have not contributed to the boom, remember, the settling of the west was a giant creation of wealth, through the gold rush (and more importantly, the services supporting it), the expansion of the railroads, and in general the creation of a new infrastructure. I can't imagine that the opening of the West could have possibly had a negative impact on the economy...

No - I agree; it certainly didn't have a negative effect on the economy. But I was saying that it had a misleading effect on the statistics. While it's certainly true that, as Conn said above, there would have been trade (and Native Americans' purchases wouldn't have counted for GDP - only the furs etc they sold) compared with the industrial weight of the eastern states and the infrastructure developments you mention, it wouldn't have been a very significant element. So the averages would have tended to be depressed from time to time, as more bits of the continent, and their not terribly productive populations, started to be counted.

MG

[Guy Berger]

That's very interesting Guy. thanks. I wondered why there was such a steep decline towards the end of WWII. But then I realised that a per capita GDP chart for the US is going to be equally sensitive to changes in immigration as to changes in output. Many of the steep declines look as if they occurred at times of great immigration. Newcomers take a while before they're as effective at producing as the older hands.

So the absence of the wide swings seen before the war may simply reflect lower levels of immigration - or rather the smaller proportion (and lesser impact on the averages) of recent immigrants in the population - rather than better management on the part of the Government or the Fed.

You might want to set an immigration graph alongside the per capita GDP graph and see whether it suggests anything.

MG, I must say that for a "layman" you have very keen economic intuition.

1) The conventional wisdom on the end of WW2 is that the American economy, which had been geared very strongly toward wartime production, experienced a sharp downturn due to the fact that all those resources had to be shifted back toward civilian production.

2) Immigration is an interesting suggestion, but my knowledge the general pattern of immigration history in the US is: huge flows from the 1840s to 1924, then an institution of very restrictive quotas, and then a gradual loosening of those restrictions since WW2. I don't think immigration flows can explain business cycles, though you are right that large immigration flows or swings could have effects on per-capita GDP.

3) As far as Native Americans, MG brings up a good point. I have no clue how the 19th century GDP numbers were calculated, but I am guessing that once Native Americans "entered" the US economy they may have pushed down average per capita GDP levels. On the other hand, economists have trouble accounting for unofficial transactions, so maybe they are underrepresented. Finally, my recollection of Native American history is that their numbers added to the US population (relative to the total US population) were fairly small after 1850, definitely smaller than immigration. But the series was probably more volatile than immigration.

4) Just a standard disclaimer: the further back you go, the more suspicious GDP figures get. (National income accounting only started sometime in the 20th century.) I think it's a good sign that the swings seem to approximate the historical record for the 19th and early 20th century.

Guy