Thursday, November 29, 2012

Simulacron: Let me repeat that

Real GDP growth was faster in the years before 1980 than it was in the years since. This is true even though we ignore 2008 and after, when growth got even worse. The numbers I have are 3.798% annual growth for 1947-1979, and 3.072% for 1980-2007.

I used exponential growth trends to estimate what real GDP would have been in the years since 1980, if the faster growth of the earlier years continued. The graph below compares the outcome of this improved growth (shown in blue) with the outcome we actually got (red).

Graph #1: Better Growth Reduces Debt
The red line is the Gross Federal Debt as a percent of nominal GDP, the debt graph everybody shows. The blue line is Gross Federal Debt (reduced by the extra tax revenue generated by the faster-growing economy) divided by nominal GDP that is larger because of the faster growth: Less than one percentage point faster growth.

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