The Frightening Cost of Low Growth

American per capita GDP rose an average 2.2% a year between 1947 and 2000.

But it’s barely managed 1% since 2001.

A 1.2% difference doesn’t sound like much.

And from one year to the next it isn’t.

But repeat it every year for 10 years… 20 years… 50 years, and you’ll discover the meaning of lost opportunity…

U.S. per capita GDP was some $45,000 at the turn of this century.

But if the economy had grown at an annual 1% between 1947 and 2000 instead of 2.2%…

U.S. per capita GDP would have only been a bit higher than $20,000 — about half as much as it was in reality.

Imagine the schools and hospitals that never would have been built… the human needs that would have gone unmet… the dreams of millions that would have died aborning…

If the U.S. per capita GDP had grown 1% instead of 2.2% over the second half of the 20th century.

Some countries with per capita GDP about half the U.S.: Greece… Kazakhstan… Latvia… Chile.

Could it be… is the U.S. destined to become a Greece?

The New York Times, citing data from the McKinsey Global Institute, reported last year that “81% of the United States population is in an income bracket with flat or declining income over the last decade.”

Yet the money supply has roughly tripled since 2001.

Explanation, Janet Yellen? Ben Bernanke?

Why aren’t we all three times as prosperous?

The latest economic data show little indication of meaningful change.

Promising numbers come out one day… only to disappoint upon the next release.

Sunny forecasts of GDP growth are continually revised lower as new data roll in.

We’ve referred to it as a “one step forward, two steps back” economy.

And even the Fed’s most dedicated apologists are beginning to cough sadly behind their hands.

So if the Fed can’t breathe life into the corpse, what can?

Structural changes.

“The key is growth. The problem is we can’t do it by printing money,” explains Jim Rickards.

“The current economic slump is not cyclical; it’s structural… [It] will last indefinitely until structural changes are made to the economy.”

Structural changes?

Overhauling the tax code, gutting useless regulation and reforming entitlements, for openers.

Trump appears unable to make the slightest headway on any of it — especially on Nos. 1 and 3.

Jim says Japan’s been in a depression for over 25 years because it hasn’t made the required structural changes to its economy.

And he says, “The U.S. is now like Japan.”

Jim also says structural changes require action from the White House and Congress.

But under Trump? How many allies does he have in Congress?

Absent necessary structural changes, the future may be a marathon run of low growth and stagnating incomes… the Japanification of America.

“It’s never paid to bet against America,” said Warren Buffett.

It’s not always a smooth ride, adds the Sage of Omaha… but “we come through things.”

True… it has. And we hope it continues.

But past performance is no guarantee of future results, as the great sage must surely agree…

After all, he’s said so himself…


Brian Maher
Managing editor, The Daily Reckoning

The Daily Reckoning