NEW YORK (
) -- The 108-year trend line (1900 to 2008) for real gross domestic product starts at growth of 4.1% a year and ends at 3.1% annual growth. Most of that decline has occurred in the last 54 years (1954 to 2008). From 1900 to 1953, the trend line is nearly flat.
A picture is worth a thousand words. The figure below shows the 12-month growth of GDP, plotted every quarter, for the past 54 years.
Clearly, the reason for the declining trend line is the very low peaks in the GDP curve over the last 23 years. The incidence of deep minima from 1954 to 1984 was more than offset by very robust recoveries. I don't think it's coincidental that the decline in real GDP growth has coincided with the explosion of debt that has occurred in the same 23 years.
The difference in the rate of GDP decline between the two most recent 27-year periods is evident by comparing these two figures.
The graph isn't shown, but including the data for the first two quarters of 2009 would produce a steepening of the trend line in the third figure. In 2036, when another 27-year graph is drawn, one might hope that starting from a low point for 2009 might help produce a positive slope in the trend line. However, starting in a deep hole didn't create positive slopes in either the second of third figures. The real problem is that for most periods of 20 years or longer over the past century, the trend line for GDP is down.
The exception is for 20-year time periods that start between 1924 and 1932. Those charts all have a positive sloping trend line. That tells us that if the hole is deep enough we can generate a long-term uptrend. All of the other time periods starting from other recessions haven't been able to generate an uptrend.
The following table shows the data collected when the last 108 years is considered as a unit; when it is divided in half; and when it is divided into quarters.
All the time periods in the table, but one, have negative sloping trend lines. The trend line slope from 1927 to 1953 is massively positive. The relative size of GDP change can be judged from the numbers in the last column of the table. The increasing rate of GDP decline over the two most recent 27-year periods is quite evident in this summary.
The question is: Why has this pattern be occurred?
Here are some possibilities:
- 1. It is simply the growth pattern expected for a maturing economy.
- 2. It represents an increasing drag on GDP from ever higher levels of debt.
- 3. It is occurring because of decreasing efficiency relative to other nations.
- 4. It is a consequence of lower participation of the total population in employment.
Answers 1, 3 and 4 are interrelated, and all may contribute. However, I see a strong correlation to debt. From 1930 to 1953, total U.S. debt, public and private, fell from more than 200% of GDP to less than 140% of GDP. This constitutes most of the time in the second one-quarter of the time span covered (1927-1953). The other three quarters of the 108 years saw the ratio of total debt to GDP rising. The period from 1954 to 1980 saw the ratio rise from 140% to 170% for an increase of 21%. From 1981 to 2008, the increase was much larger, from 170% to over 350%, an increase of 106%.
Until someone comes up with a better hypothesis, I propose to place the bulk of the blame for declining GDP growth on the burden of rising debt.
-- Written by John Lounsbury in Clayton, N.C.
John B. Lounsbury is a financial planner and investment adviser, providing comprehensive financial planning and investment advisory services to a select group of families on a fee-only basis. He worked for 34 years with IBM, and spent 25 years in R&D management and corporate staff positions. He also was a Series 6, 7, 63 licensed representative with a major insurance company brokerage for nine years.
Specific interests include political and economic history and investment strategy analysis. He holds degrees from the University of Vermont, Columbia University and the Illinois Institute of Technology, where he studied chemistry, physics and mathematics. He is a contributor to Seeking Alpha and his own blog,