Thursday, April 03, 2008

The Per Capita Recession

GDP (Gross Domestic Product) is a statistic that economists use to gauge the output of a nation. Movements in GDP provide clues about the health of an economy.

Look at GDP growth over the last five years, and the United States comes out smelling like roses, relative to other high-income countries, at nearly 3% growth per year. But statistics can be deceiving.

An article from the Economist titled “Grossly Distorted Picture,” questions whether GDP is an accurate measure of a nation’s economic health. The article suggests that, though GDP growth for the United States is higher than other countries, other factors, like population, also play an important role. As the article points out, growth of GDP per person is perhaps a more meaningful measure of economic progress than simply growth of GDP.

For example, over the same four-year period (2003-2007) Japan’s GDP growth was just over 2%, far below the nearly 3% growth the United States experienced. But during that time, Japan’s population was shrinking while the population of the United States was growing at nearly 1% per year.

If you calculate GDP per person Japan’s economy actually grew faster (2.1%) than that of the United States (1.9%).

Discussion Questions

1. Which countries have the biggest discrepancies between GDP growth and GDP per person over the last five years? Does that change your perceptions of the health of these nations?

2. As the article points out, annual U.S. population growth is roughly 1%. The annualized growth of U.S. real GDP (real GDP is an inflation-adjusted measure of output) was 0.6% during the last three months of 2007. Assuming U.S. real GDP growth in the first three months of 2008 was about the same—what does this imply for U.S. GDP per person?

3. Economists typically define a recession as six months or more of declining real GDP How would the use of real GDP per person rather than real GDP change our perspective on recent U.S. economic performance? According to this method, is the U.S. economy in recession?

4. As gauges of economic output, both GDP and GDP per person have their flaws. For starters, each measure misses the value of things that are not traded in a legitimate marketplace but may nonetheless impact our economic well-being. Underground activity, whether illicit drug dealing or benign babysitting, does not register in national income accounts. Environmental damage associated with our production and consumption is also not a factor. Can you think of other statistics we should consider when measuring a nation's economic health? What are some of the benefits and drawbacks to those methods?

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  • At 2:26 PM, April 24, 2008, Blogger Jesse Russell said…

    When looking at a nations GDP, especially the United States of America you need to realize that all your looking at is smoke and mirrors because there are to many factors that do not measure a countries productivity that go into GDP. What people need to understand is that the United States of America is actually taking a step backwards while other industrialized countries take steps forward. I believe that the United States of America needs to start making changes so that it will always be the greatest country in the world. Of course the government can only help so much the people of the U.S.A need to unite and start making decisions about our economy that are better for everybody not just for the rich republicans. Its seems like the rest of the world looks at america like it is their hillbilly neighbor that nobody likes. But even though the United States has this bad rep. it still does not change the fact that the United States is the leader of the free world. So it is my beliefs that the United States of Americas problems are truly the problems of everybody that lives in the free world.


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