Tuesday, May 30, 2017

The previous slowdown in economic growth

Arguing with Paul Krugman, Scott Summner wrote: "I am not denying that growth in US living standards slowed after 1973, rather I am arguing that it would have slowed more had we not reformed our economy."

Sumner accepts the view that the growth in US living standards slowed after 1973.

The classic graph that shows that slowdown is this one from Ross Perot:

Graph #1 Source: Ross Perot, United We Stand
(from when Perot was running for President in 1992)
Before 1973, living standards would double in less than two generations. After 1973 it would take 12 generations for living standards to double.

If a generation is 25 years: Before 1973 it took less than 50 years for living standards to double. After 1973, according to the graph, 300 years.

Scott Sumner says things would have been even worse if not for the Reagan-era reforms.

Perot lost the 1992 election to Bill Clinton, and during the Clinton years the economy improved. (I'm talking chronology here, not causality.)  The "generations required" number came back down, but only for about ten years. Then it went up again. And after that we had the financial crisis and recession, and the "generations required" went up even more.

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