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Chapter 18 Long-Term Economic Growth

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I. Analyzing recent economic growth

    A. Measurement will be in nominal, real, and per capita amounts.
    B. Real per capita Gross Domestic Product, Disposal Personal Income, Total Private Wages,
         Manufacturing Wages and spending on Social Security, Medicare, and Medicaid will be studied.

Real Per Capita Growth in GDP and DPI 1929-1999 Some of the data on these charts is projected by the 2006 Economic Report of the President.
	1960	1970	1980	1990	2000	2005p
GNP/GDP (billions)	518	1,002	2,727	5,735	9,710
GDP per capita -current dollars	2,912	5,064	12,249	23,195	34,759	42,047
GDP per capita -Chained 2000 dollars	13,840	18,391	22,666	28,429	34,759	37,504
% Increase in Real Per Capita GNP/GDP		33%	23%	25%	22%	8%
DPI - current dollars - billions	365	736	2,009	4,286	7,194	9,031
Real Per Capita DPI	1,760	2,782	3,858	5,324	7,194	8,115
Absolute Increase in Real Per Capita DPI		1,002	1,076	1,466	1,870	921
% Increase in Real Per Capita DPI		58%	39%	38%	35%	13%
2. View Bradford DeLong's( USC Berkley) dynamic presentation of U.S. GDP growth per capita since 1900.

         1. Industrial Revolution and the Standard of Living by Clark Nardinelli
         2. The First Measured Century Ben Wattenberg's classic is a must for those interested in the economic history of the 20th century.
         3. The Escape from Hunger and Premature Death, 1700-2100” by Robert William Fogel. Cambridge University Press, 2004.

Private and Manufacturing Actual and Real Hourly Wages 1959 -1999
	1959	1969	1979	1989	1999
Total Private Hourly, actual dollars	2.02	3.04	6.16	9.66	13.24
Manufacturing, actual dollars	2.19	3.19	6.70	10.48	13.91
Total Private, 1982 dollars	6.69	7.98	8.17	7.64	7.86
Manufacturing, 1982 dollars	7.25	8.37	8.89	8.29	8.26
Difference between Private-Manufacturing, 1982 dollars	.56	.39	.72	.65	.40

Experts Say Growth Medicare Spending Is Out Of Control
Data from Bureau of Economic Analysis

Social Security Medicare Medicaid

1970 29.6¹ 6.8 2.7

2003 470.6 274.2 160.7

¹Billions of Dollars

The Real Story
Spending As A Percentage Of Gross Domestic Product

Defense International
(Foreign Aid) Social Security Medicare Medicaid

1970 8.1 0.04 2.9 0.7 0.3

1980 4.9 0.5 4.3 1.2 0.5

1990 5.2 0.3 4.3 1.9 0.7

2000 3.0 0.2 4.2 2.2 1.2

2003 3.7 0.3 4.3 2.5 1.5

Percent Point Change 3.7-8.1 = -4.4 0.3-0.4=-0.1 4.3 - 2.9 = 1.4 2.5-0.7 =1.8 1.6-0.3 = 1.2

Combined Change
-4.4 + (-0.1)= -4.5

1.4 + 1.8 + 1.2 = 4.4

Note that social security has not gone up because retirement age was delayed in the early 1980's and the same thing will happen to Medicare.
Medicaid is the price we pay for not having socialized medicine.

C. Rapid growth policies have costs to society
         1. Pollution
         2. Harried lifestyle
         3. Neglected worker safety
         4. Increased litigation

II. Determinants of growth
      A. Quantity and quality of natural and human resources
      B. Quantity and quality of capital goods
      C. Development and application of technology
      D. Efficiency of economic system
          1. Maintaining reasonable, consistent growth in Aggregate Demand (not having recessions or excessive inflation)
          2. Efficient allocation and use of economic resources

    E. The latest edition of Economics by McConnell and Brue provide this data on U.S. Growth Competitiveness.
      .
      F. The latest edition of Economics by McConnell and Brue provide this data on U.S. education.

III. Is college the Answer for most people?
2004-14 Job outlook by education
Olivia Crosby and Roger Moncarz

don’t have a bachelor’s degree
Nutshell Snippet PDF

college graduates
Nutshell Snippet PDF

Occupation Employment Projections to 2014
by Daniel E. Hecker visit
Abstract | Excerpt | Full text in PDF (205K)

Summary of the BLS 2004-2114 Job outlook by education for college graduates"Between 2004 and 2014, BLS projects 55 million job openings for workers who are entering an occupation for the first time. Of these, at least 13.9 million [25.3%]are expected to be filled by college-educated workers."

The Department of Labor continues in its efforts to explain or not explain the over supply of college graduates. Their latest attempt to divide college graduates into two categories. "In these 'pure college' occupations, at least 60 percent of current workers aged 25-44 have a bachelor’s or higher degree, fewer than 20 percent have a high school diploma or less education, and fewer than 20 percent have taken college courses but do not have a bachelor’s degree." BLS projects that pure-college occupations will provide about 6.9 million..." [about 12.5% of the total openings].

"Over the 2004-14 decade, about 15.6 million openings are projected to be in occupations in which the number of college educated workers is significant—20 percent or more but which also employ a significant number of workers with other levels of education." Of this "Mixed education" occupations group, the "...BLS
expects 7 million to be filled by college graduates..."[about 12.5%of the total opening][ note 12.5 +12.5 = 25]

The August 20&27 issue of Business Week states on page 45 that the BLS reports that 34% of adult workers in the U.S. now have a college degree. This means that about one-quarter of the college graduates (34% -25%)/34% will be in occupations where less than 20% of the workers have a college degree.

IV. Is slow economic growth a problem for the United States
A. Recent growth trends of western industrial countries (% change)

	Output Growth		Inflation
	1950-70	1970-91	1950-70	1970-91
United States	2.8	2.1	2.4	6.2
Japan	9.2	4.4	4.9	5.5
West Germany	6.3	2.5	2.2	3.8
Canada	4.9	3.5	2.5	6.9
United Kingdom	3.6	2.4	3.7	10.0
France	5.3	2.7	4.9	7.8
Italy	5.7	3.0	3.5	11.7
Average	5.4	2.9	3.5	7.4

B. In 1870 the U.S. standard of living was 15% below that of the United Kingdom. Over the next 120 years a higher growth
   rate of only 1/2 of one percent in the U.S. (1.86% to 1.34%) resulted in the U.S. having a standard of living 50% higher
   than that of the United Kingdom.
C. When this data was published in the early 1990's, people reacted the following conflicting thoughts.
     1. Some believed people were not sacrificing for the future.
         a. Saving and investment were low
         b. Labor force was poorly prepared, especially the bottom quarter.
         c. Research and development funds were small and poorly applied.
     2. Others felt recent slow growth is a short-term complicated problem.
         a. A large number of baby boomers and women were new to the labor force and would need time to develop
            appropriate skills.
         b. Benefits of "Green movement" (to improve world-wide ecology) are difficult to measure and are excluded from GDP.
         c. Little credit is being given to the economic system which provided the wealth necessary to increase longevity.
         d. Service productivity, which is difficult to measure, is substantially understated.
         e. There has been a substantial increase in residual construction and capital gains from stock investments which do not
             count as savings.
         f. Military R & D helped win the cold war, and when transferred to the private sector, will increase growth.
D. Beginning in 1995 the United States experienced a substantial increase in productivity while Japan and Europe experienced
     a drop in productivity.  McConnell and Brue provide the productivity chart. Participation rate from the Big Picture Economics Blog.

         1. By 2001 Alan Greenspan, chair of the Federal Reserve, worried that the high productivity and paying off the federal
            debt too fast could have unforeseen economic repercussions.
         2. Interesting, as indicted at the beginning of this chapter, recent productivity increases didn't translate into increased
             economic growth.
         3. By 2006, some studies were indicating that recent growth rates may have been overstated.

IV. Cycles: Some empirical issues show that long term can be a long time.
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Experts Say Growth Medicare Spending Is Out Of Control Data from Bureau of Economic Analysis
		Social Security		Medicare		Medicaid
1970		29.6¹		6.8		2.7
2003		470.6		274.2		160.7
¹Billions of Dollars
The Real Story Spending As A Percentage Of Gross Domestic Product
	Defense		International (Foreign Aid)	Social Security	Medicare		Medicaid
1970	8.1		0.04	2.9	0.7		0.3
1980	4.9		0.5	4.3	1.2		0.5
1990	5.2		0.3	4.3	1.9		0.7
2000	3.0		0.2	4.2	2.2		1.2
2003	3.7		0.3	4.3	2.5		1.5
Percent Point Change	3.7-8.1 = -4.4		0.3-0.4=-0.1	4.3 - 2.9 = 1.4	2.5-0.7 =1.8		1.6-0.3 = 1.2
Combined Change	-4.4 + (-0.1)= -4.5			1.4 + 1.8 + 1.2 = 4.4
Note that social security has not gone up because retirement age was delayed in the early 1980's and the same thing will happen to Medicare. Medicaid is the price we pay for not having socialized medicine.

Last Chapter	Chapter 19 Introduction to Microeconomics
Chapter 18 Class Discussion Questions	Table of Contents
Chapter 18 Homework Questions	Economics Free Stuff