Saturday, October 23, 2010

GDP Comparisons and Some Conclusions

Ordinarily I would not find time spent combing through financial data to be very satisfying. This time was different because I actually found some encouraging data, and I got to play with a new toy. The IMF provides a tool here for querying a database on financial data stored by country and by year. I have only looked at the GDP data thus far, but I expect there is more fun to be had.

My interest in GDP was driven by three things. The Obama administration and most economists claim the stimulus funding has saved our economy from a much greater fall in GDP and a much greater increase in unemployment. It would be good to have in hand some data to wave at the evil-doers in the opposition party. The second issue to be addressed is the health of the U.S. economy relative to other countries. It is claimed that the social policies of the European countries impose a penalty in terms of lower economic growth. It would be interesting to quantify that effect. The third issue relates to the economic health of Japan. A number of U.S. economists fear that we will end up with a “lost decade,” such as Japan is said to have suffered. Japan is said to have been in a slow growth mode for an extended period. I would like to learn what has actually occurred, at least in terms of GDP.

The data I will present pertains to the U.S., China, Germany and Japan—Germany is a good “look alike” for the U.S. in the E.U., China is interesting in its own right, and Japan for the reason given.

In reference to whether the economic stimulus helped or not, consider this chart.

 We went into the economic emergency with a growth rate comparable to Japan and Germany and our decline in 2009 was at least two percentage points less than what those countries experienced. I will take that as a win for the stimulus funding. This simple approach seems to be consistent with what economists are claiming.

As a good citizen, I am hoping that the U.S. has been and will continue to perform well economically. Consider these charts.

The U.S. has performed surprisingly well considering all the competition coming from emerging nations like China. The last chart indicates that the U.S. has managed to grow faster than Japan or Germany over the last thirty years. I looked at several European countries and Germany is representative of the community. The U.S. has grown faster than Europe, and it is likely that the European social policies have been a factor. I personally believe the extra growth is not worth the hardships our “everyone-for-themselves” policies impose on our citizens.

Here is one final chart.

If one considers the plot above of GDP growth, one can come to the conclusion that Japan was growing like an emerging country prior to 1990, and subsequently relaxed back to a typical growth pattern of a country with a mature economy. Its growth has been a bit better than that of Germany. Based on this data, if an economic pundit warns again about “becoming Japan,” I will be a lot less concerned.

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