Real Per Capita Net GDP Is In Free-Fall

By George Noga

More Liberty Less Government strives to find and to present different perspectives – often not found elsewhere – about the economy.

Here, we introduce to these pages the concept of “Net GDP”. Everyone understands GDP measures the size of an economy. Economists and laypeople alike usually look at GDP to analyze the health and capacity of an economy to create wealth and jobs as well as to increase personal income and well-being. In many situations however GDP taken alone is not instructive or predictive and even can be misleading.

“Shriveling Net GDP reduces the base for future growth creating a vortex of economic contraction.”

Net GDP is computed simply by taking GDP and subtracting all government spending – federal, state and local. Net GDP thusly derived then is divided by the population to compute Per Capita Net GDP. Finally, the data are adjusted for inflation to arrive at “Real Per Capita Net GDP” (hereinafter simply referred to as Net GDP). The rationale for excluding government spending is that public expenditures reduce the pool of funds available for capital investment, business expansion and job creation. Downward spiraling Net GDP creates a vicious circle, i.e. the more it contracts, the worse the private economy becomes; a shriveling Net GDP reduces the base for all future growth resulting in a vortex of economic contraction.

In a healthy economy Net GDP increases each year but always over the length of an economic cycle. This has been true for some time in the USA. Let’s look at some data. Net GDP was $26,500 in 2007; it decreased 19% to $22,200 in 2011; based on CBO budget projections, it will decrease to $19,100 by 2020. This means the total decrease in Net GDP from 2007 to 2020 is $7,400, or 39%. Distressingly, the CBO numbers are uber-optimistic and the likely decrease by 2020 will be between 40% and 50%. Source Notes: Credit for some of the data and ideas belongs to Steve McCann’s recent article in “American Thinker”. Net GDP data are derived using data from CBO, BLS, US Census and Inflation Calculator.

For the record, other countries are faring much better – particularly those which sharply have reduced government spending. Germany’s Net GDP is increasing. Other countries including Canada, Australia and New Zealand also are increasing, albeit this is based on the limited data at my disposal.

“Skyrocketing spending, languorous economic growth and population increase results in a triple-whammy.”

Net GDP taken alone is not the entire answer nor should it be a revelation. There are many ways to look at and to measure the deleterious effects of government spending. Alone among major developed countries, the USA’s population is projected to increase steadily – adding over 50 million by 2030. This population growth contributes significantly to our lower Net GDP number. Viewing GDP on a per capita basis adds considerable explanatory value. To use a highly technical economic term, conflating skyrocketing government spending, languorous economic growth and substantial population increase results in a triple-whammy.

Despite the limitations and caveats noted supra, Net GDP cannot be ignored. The data tell us we must add 55 million new jobs by 2030 – 40 million to allow for population increase and 15 million to recover the jobs lost in the recession. This is impossible with a shrinking Net GDP. You should take away from this blog post two main points:

1. Unless government spending is cut with a meat cleaver and the private economy blossoms, the USA is in for chronic stagnation, unemployment and a lower standard of living. Our children will be poorer than us by 20% or more.

2. Our self-inflicted wounds are due to a stated desire to help the underclass by massive government redistribution of wealth. As shown by net GDP, that same underclass will be 20% to 30% worse off compared to 30% better off with 1% per year higher economic growth within only one generation.

All of us (particularly the less fortunate) are being sacrificed on the altar of a failed big-government, redistributive and yes, socialistic agenda promulgated by people who never have worked in the private economy nor created a private job. In their warped calculus they gladly sacrifice the country to advance their ideology – which is a demonstrable failure throughout all human history.

“It is we who will be left to sort out the social mayhem and economic detritus while the perpetrators retreat to some island redoubt to escape the flash mobs.”

It is we who will have to sort out the social mayhem and economic detritus. Meanwhile the unreconstructed and unrepentant perpetrators will retreat to some island redoubt with no bridges to escape the flash mobs. They will pass the lost decade(s) luxuriating in some liberal Shangri-la accessible only by boat or air – some place like say Martha’s Vineyard.


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