Economic growth how much how fast

Arguing that excessive and inefficient regulation depresses economic growth, the Republican Congress set about in to redesign and scale back the regulatory apparatus of the federal government, particularly environmental protection.

How much added growth can realistically be expected from such a rollback? Dale Jorgenson and Peter Wilcoxen have estimated that removing all environmental controls would eventually raise measured GDP by 3. Adjusting that estimate to account for statistical peculiarities involving the net economic costs resulting from the mandated installation of emission control devices gives a figure closer to 2.

Of course no one proposes scrapping all environmental controls. But costs could be reduced in two ways. First, some environmental laws and regulations have economic costs that well exceed the value of their environmental benefits. Those laws and regulations could be scaled back. Realistically we should not expect to achieve all the theoretically available saving.

It would be impossible to fine-tune the environmental cleanup so as to take all actions whose benefits exceed costs and none whose costs exceed benefits. Besides, voters have widely differing views as to the value of the benefits. An ambitious target might be to pare the economic costs of environmental regulation by 25 percent.

That, according to the adjusted Jorgenson and Wilcoxen estimates, would yield a gain of 0. In turn, realizing most of the gains by the end of 10 years would temporarily raise GDP growth a little less than 0. After that GDP would grow at its earlier rate but along a higher path. Even small increases in economic growth, if they persist for several decades, can boost noticeably the living standards of the next generation.

But nothing that is realistically possible, not tax cuts, nor public investments, nor regulatory reform, will generate the large gains that many politicians are seeking—and promising. Moreover, neither tax cuts nor public investments will generate enough economic gain to pay for more than a small fraction of their budgetary costs.

To avoid raising the deficit, and thereby lowering growth, they would have to be accompanied by spending cuts over and above the massive ones already required to erase the budget deficit. After witnessing the difficulties and shortfalls over the past two years in nailing down budget-balancing spending cuts, a reasonable person could well question whether now is the time to launch new policies that would, at best, provide small increments to growth, while running the risk of actually lowering growth by worsening the budget deficit.

Related Books. Charles L. More on U. The Avenue The monthly jobs report ignores Native Americans. How are they faring economically? Gabriel R. Sanchez , Robert Maxim , and Raymond Foxworth. The first part is the very long time in which the average person was very poor and human societies achieved no economic growth to change this.

Incomes remained almost unchanged over a period of several centuries when compared to the increase in incomes over the last 2 centuries. Life too changed remarkably little. What people used as shelter, food, clothing, energy supply, their light source stayed very similar for a very long time. Almost all that ordinary people used and consumed in the 17th century would have been very familiar to people living a thousand or even a couple of thousand years earlier.

This means an average person in the UK today has a higher income in two weeks than an average person in the past had in an entire year. Since the total sum of incomes is the total sum of production this also means that the production of the average person in two weeks today is equivalent to the production of the average person in an entire year in the past. There is just one truly important event in the economic history of the world, the onset of economic growth.

This is the one transformation that changed everything. As this chart of total GDP in the England over seven centuries shows, the increase of the total output of the UK economy grew by even larger extent, because not only average incomes increased since the onset of the Industrial Revolution, but the number of people in the country increased as well.

In the previous chart we saw that it was only after that living standards in the UK did start to increase for a sustained period. Before the modern era of economic growth the economy worked very differently. Not technological progress, but the size of the population determined the standards of living. If you go back to the chart of GDP per capita in the England you see that early in the 14th century there was a substantial spike in the level of incomes.

Incomes increased by around a third in a period of just a few years. This is the effect that the plague — the Black Death — had on the incomes of the English. The plague killed almost half! The population declined from 8 million to 4. We even see it in the chart for the world population. But those that survived the epidemic were materially much better off afterwards.

The economy was a brutal zero-sum game and the death of your neighbour was to the benefit for those that did survive. This happened primarily because farmers now achieved an higher output. While farmers before the plague had to use agricultural land that was less suited for farming, after the population decline they could farm on the most productive areas of the island.

In the very long time in which humanity was trapped in the Malthusian economy it was births and deaths that determined incomes. More births, lower incomes. More deaths, higher incomes. We see this coupling of income and population in the chart below that plots the size of the population on the x-axis against the total output of the English economy top panel and against the income per person bottom panel. Looking at the bottom panel we see the spike of incomes that was associated with the killing of half of the population in the Black Death.

After this the population and the income per person stagnate until around It is only after that the English economy breaks out of the Malthusian Trap and that incomes are not determined by the size of the population anymore.

For the period after we see that both the population and the income per person are growing. The economy is not a zero-sum game anymore; economic growth made it a positive-sum game. When Malthus raised the concerns about population growth in 1 he was wrong about his time and the future, but he was indeed right in his diagnosis of the dynamics of his past.

The world before Malthus was Malthusian and population increases were associated with declining nutrition, declining health, and declining incomes. The world after Malthus became increasingly less Malthusian.

What Malthus did not foresee was that the increasing output of the economy will decouple from the change of the population so that the output available for all will increase over a long period. This decoupling of income and population is shown in the chart.

Technological innovation that increases productivity is the key to increased prosperity. But there were technological breakthroughs before the 17th century. Windmills, irrigation technology, and also non-technical novelties especially the new crops from the New World. Why did these not lead to sustained economic growth? What happened as a consequence of these innovations were indeed increases in productivity, and the output increases led to increased prosperity.

But only for a short time. Improvements in technology had a different effect in the Malthusian pre-growth economy. They raised living standards only temporarily and instead raised the size of the population permanently. Technological improvements lead to larger, but not richer populations.

If this analysis of the pre-growth economy is true than we would expect to see a positive correlation between productivity and the density of the population. Ashraf and Galor 3 studied the Malthusian economy theoretically and empirically in a paper published in the American Economic Review.

The chart below is taken from their publication and confirms the theoretical prediction for the pre-growth economies in the year All the data is reported in the current borders of the world. On the x-axis of both charts you find the same metric: The productivity of the agricultural land as measured by the quality of the soil and the climate. On the chart on the left we see that those world regions with a low productivity of agriculture had very low population density.

The regions with the highest population density on the other hand are all regions with very productive land. The agricultural sector in Spain, India, or Morocco was much more productive than in Finland, Egypt, and Norway, but the people were not better off. The more productive regions were the more populous regions and the people there had to share with so many so that everyone remained at dismal levels of prosperity.

In the long history before modern economic growth, higher productivity lead to larger, but not richer populations. Throughout history there were several episodes in which certain economies achieved economic growth, but in contrast to the sustained growth since the Industrial Revolution these episodes were all short-lived. What is new about modern times is that the growth of incomes lasted for a very long time — until today — and that this growth did not only increase the incomes in one economy, but instead spread to other economies as well.

The origin of this transformation is North-Western Europe. It was in England and Holland in the early 17th century where it became first possible to grow incomes over a sustained period of time.

The chart shows this. Data on economic growth is now routinely published by statistical offices, but researchers have had to reconstruct accounts of the economic productivity for the past. There are several reconstructions of GDP per capita over the last centuries; most widely used were for a long time the reconstructions by the British economist Angus Maddison.

Maddison was working in Groningen in the Netherlands and after his death in the Groningen Growth and Development Centre is continuing this work. Maddison attempted to reconstruct economic growth in all regions of the world and some of the estimates, especially in early publications, were more crude than others. In recent years several research teams have produced several much more detailed reconstructions of economic growth over the long run. These researchers put extensive work in these reconstructions and typically focused on one particular region or country only.

An example are the long-run reconstructions of the economy of Great Britain at the beginning of this entry. The successors of Maddison in Groningen have then extended his original work by combining them with the many new reconstructions that were published in recent years. This project is referred to as the Maddison Project Database and this is the main source of long-run reconstructions of economic growth used today.

The two charts below present the estimates of economic prosperity over the long run, as they were published by the Maddison Project Database in their update. The dataset also includes estimates of GDP per capita for individual countries — some of which extend even further back in history, as shown in the second chart.

What we learn from these charts is that on average the people of the past were many times poorer than we are today. For all the hundreds, and really thousands, of years before , the average GDP per capita was even lower.

Prosperity is a very recent achievement that distinguishes the last 10 or 20 generations from all of their ancestors. If we compare the economic prosperity of every region today with any earlier time we see that every single region is richer than ever before in its history. Economic growth, however, has not happened equally as fast in all regions.

This has created substantial inequalities globally, which we study in more detail in our entry on global income inequality. Economic growth is a very recent phenomenon — we already saw this in the data that we discussed earlier in this entry.

It is true that in the pre-growth era some people were very well off — but this was the tiny elite of the tribal leaders, pharaohs, kings and religious leaders. Whilst global inequalities were lower in a world where sustained economic growth had yet to occur anywhere, economic inequality within pre-modern societies was extremely high and the average person was living in conditions that we would call extreme poverty today.

The destitution of the common man only changed with the onset of economic growth. The time when this change happened in various countries can be seen in these two charts. Economic prosperity was only achieved over the last couple of hundred years. In fact, it was mostly achieved over the second half of the last hundred years. The rise of global average incomes — global GDP per capita — shows that the world economy has moved from a zero-sum game to a positive-sum game.

This made it possible that when people in one place became richer, other people in other places could become richer at the same time. For this I have used recent data from the World Bank for the period from onward and for the historical estimates before I rely on the historical estimates constructed by the economic historian Angus Maddison. This means that the output per person in one year in the past was less than the output of the average person in three weeks today.

It is remarkable how steady economic growth was over this very long period. From to GDP per person in the U. The chart below compares the economic growth at the technological frontier with the growth of countries that are further away from the technological frontier.

In this chart the steepness of the growth path corresponds to the growth rate as GDP per capita is plotted on a logarithmic axis. Economies that are far away from the technological frontier can grow very rapidly. Catch up growth can be much faster than growth at the technological frontier. The average person in the world is 4. But beyond this global average, how did incomes change in countries around the world? Who gained the most, who gained the least? And why should we care about the growth of incomes?

These are the questions I answer in this post. The chart below shows the level of GDP per capita for countries around the world between and On the vertical axis you see the level of prosperity in and on the horizontal axis you see it for GDP — Gross Domestic Product — measures the total production of an economy as the monetary value of all goods and services produced during a specific period, mostly one year.

First, nobody claims that the economy has a 2-point-something percent speed limit under all circumstances. When a baby-sitting co-op is in a depressed state because of an insufficient supply of Popsicle sticks, its GBP gross baby-sitting product can rise very quickly when that supply is increased.

Thus there is nothing puzzling about the ability of the U. The speed limit applies only when the economy has expanded as much as it can by taking up slack through the use of unemployed resources. That is a misleading caricature of what economists are saying, and like all caricatures it is easy to ridicule. To return to our example, no economist would argue that our baby-sitting co-op would suffer inflationary pressures if it grew by adding new members or if current members became more efficient at child care and were therefore able to do more babysitting.

The limits to growth apply only to growth achieved by expanding demand—say, by issuing more Popsicle sticks—and not to growth achieved by productivity improvements or increases in the number of workers. So if excessive expansion in demand is the real culprit, how much expansion is too much?

Again, return to the baby-sitting economy. How would you know when there were too many Popsicle sticks in circulation? Another indicator would be the frequency with which parents sought but could not find baby-sitters.

That figure would more or less correspond to the U. Very low unemployment and a high vacancy rate would indicate that the co-op was suffering from excessive demand.

In the full-scale economy, it turns out that the vacancy rate and the unemployment rate are closely inversely correlated, but data on unemployment are collected more regularly and systematically. We can use the more readily available unemployment rate as a pretty good indicator of labor-market tightness.

How low an unemployment rate is too low? There is, to be honest, a fair amount of uncertainty about that question. However, wage increases have begun to accelerate, and stories about labor shortages—usually rare in the U. In the last six months of , such stories were about three times as common as they had been a year earlier. In such a tight job market, it seems unlikely that the Fed could cut unemployment further merely by increasing demand. Perhaps policy initiatives such as training programs, which might make more people employable, could give the economy more running room.

But the new paradigmatics want the Fed to adopt higher growth targets now, without any preconditions of that sort. Although economists may not be able to say with great certainty how low an unemployment rate is too low or, to put it another way, at what level we would expect increases in demand to trigger inflation , we do know reasonably well what growth rate will keep the unemployment rate at roughly its current level. Between and , the rate of growth consistent with a steady unemployment rate was about 2.

Each marker represents a year between and Over that period, the unemployment rate rose if the growth rate fell below 2.

Each additional point of growth turns out to have reduced unemployment by half a point. Nor is there any evidence to show that the growth rate consistent with a constant unemployment rate—which is the maximum growth rate that can be sustained once the economy has taken up all of its slack—has increased in the last few years.

The unemployment rate in averaged 5. The average growth rate over those five years was 1. Why does the sustainable growth rate seem to be so low? There are two main reasons. First, the U. All of this seems pretty well established. How, then, can the new paradigmatics claim that the economy is capable of much faster growth? In part, they simply do not believe the official numbers: they believe that outdated statistics are greatly understating productivity growth. But is that true?

More important, does it matter? It is a truism that increases in productivity are the key to long-term economic growth. It is therefore a cause for concern that official numbers show that the United States remains in the productivity slow lane, which it has occupied since the early s.

Many business leaders, however, find these official statistics hard to credit. For one thing, they find it implausible that the digital revolution, which has had so much impact on the way business is conducted, should not have produced a more visible payoff.

Furthermore, many executives believe that intense competition has forced them to engage in radical measures to increase productivity; again, they cannot believe that these measures have not paid off for the economy as a whole. To those who believe that dreary official statistics on productivity are wrong, it seems obvious that dreary conventional views about the limits to growth are also wrong.

Suppose, after all, that actual productivity growth in the s has been more than twice as high as the official number—say 2. First, although the critics of official productivity statistics have a case, there are counterarguments.

Vietnam now is one of the most dynamic emerging countries in East Asia region. Between and , GDP per capita increased by 2. Given its deep integration with the global economy, the Vietnamese economy has been hit by the ongoing COVID pandemic, but has shown remarkable resilience.

GDP grew by 2. It was one of the few countries in the world to do so, but the crisis also left a lasting impact on households, with with 45 percent of households reporting lower household income in January than in January Vietnam is experiencing rapid demographic and social change. Its population reached According to the Population Census Report, But the population is rapidly aging. This is higher than the average for East Asia and the Pacific region and lower middle income countries.

Between and , the HCI value for Vietnam increased from 0. There is also a need to upgrade the skills of the workforce to create productive jobs at a large scale in the future. Health outcomes have improved in tandem with rising living standards. From to , the infant mortality rate decreased from Between and , life expectancy increased from However, the high and widening sex ratio at birth in shows that fundamental gender discrimination persists. Over the past 30 years, the provision of basic services has improved significantly.

Access of households to infrastructure services has increased dramatically. As of , 99 percent of the population uses electricity as their main source of lighting, up from just 14 percent in Access to clean water in rural areas has also improved, up from 17 percent in to 70 percent in , while that figure for urban areas is above 95 percent. This will create challenges for continued growth of modern infrastructure services required for the next phase of growth. Electricity consumption has tripled over the past decade, growing faster than output.

There is an urgent need to accelerate the clean energy transition. Over the past two decades, Vietnam has emerged as the fastest growing per-capita greenhouse gas emitters in the world — growing at about 5 percent annually. Demand for water continues to increase, while water productivity is low, about 12 percent of global benchmarks.

Unsustainable exploitation of natural assets such as sand, fisheries, and timber could negatively affect prospects for long-term growth.