Thursday, April 24, 2014

A Thought About Economic Growth in the USA"

"Exponential Growth Illustrated by Real US GDP Data from 1790 to 2012"
The long term real growth rate of the U.S. GDP has been 3.68 percent per year. The rate varied. From the late 1870s to the crash of 1893 it was notably higher, as it was in the 1930s and during World War II in the recovery from the 1927 crash.

Thomas Piketty in his book Capital in the Twenty-First Century suggests that the average return on capital is about 5 percent. When that is higher than the growth of the GDP, more of that growth goes to return on capital and less to wages; when the return on capital is less than the rate of growth of GDP, then more of the increase goes to wages and less to capital.

So the rich get poorer when there is a crash, but recover wealth during the recovery. If Piketty is right, the rapid accumulation of wealth in the last few decades is in part due to the inability of the U.S. economy to sustain high levels of economic growth. (Some argue that the conservatism of the very wealthy and their increasing political power keep growth low.)

1 comment:

John Daly said...

There is a useful article on Piketty's book in The Economist.