A world GDP growth chart going back to the early 60's- those were truly the days- or so I hear. By the growth rates achieved looks like the LSD paid off handsomely.
Too bad the chart doesn't go farther back. Even with all our innovation talk these days, it doesn't look like we've ever really beaten (though maybe we've matched) 60's growth. No link as this was taken from Clarkson's Shipping Intelligence Network, a pay site.
Here's the question rattling our minds- Why is 4-5% the magic GDP range? We understand population growth will be a part of this, but then why is productivity's growth contribution usually capped out near 3%, on a normalized basis? Why not 1%? Or 5%? What's holding us back?
better Fed controls now than in the past?
Posted by: Vladimir Orlt | June 06, 2006 at 04:33 PM
Population growth ADDS to the mystery. Growth rates were a lot higher in the past than they are now, but we have the same growth rate.
Another related mystery is the plot of western (eg. USA) productivity growth. This is available back for about 200 years and rarely deviates from 1-2%/year.
How on earth does the productivity growth rate of early 19th century farmers match early 20th century factory workers and early 21st century computer operators? What could possibly be common to these workplaces?
Posted by: Patrick | June 06, 2006 at 06:50 PM
I'm not sure where the problem is. Sure, we can grow faster if money supply expands faster without producing inflation. For that, the quality of bank credit must remain high, even while the quantity increases by more than say 4-5%.
I always find it easier to think of national (or global) bank balance sheets rather than M1/M2/M3 measures of money supply. Every dollar of deposits (bank liabilities) must be matched by a dollar of bank assets (loans). Simple double entry accounting shows that for money supply growth to occur, bank lending must increase, right? The issue then simply becomes the quality of credit and not just the quantity of credit (Milton Friedman may disagree of course ;-). I think any growth rate is potentially achievable, and much higher increases in money supply are possible, with higher corresponding growth rates, AS LONG AS bank credit quality remains high. In my book _Zen and the Art of Funk Capitalism_ I postulate that with bank debt becoming increasingly securitized and traded on the secondary markets, the quality of credit is being maintained by the markets, rather than the central banks. All of which means we could still potentially move to ever higher growth rates without significant price inflation. We just have to wait until more and more debt is securitized and traded on the markets. And there will be bumps, such as when we finally find out how good Chinese bank credit REALLY is...
Just my two bits...
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