Real Per Capita GDP Falls 1.5%, Recession Now One Year Old

Yesterday, November 25, the Bureau of Economic Analysis announced that real GDP* in the 3rd quarter fell at an annual rate of 0.5%, worse than its preliminary estimate of a decline of 0.3%.  But GDP is a meaningless figure if it’s not related to the size of our population. Since the U.S. population is steadily rising at an annual rate of about 1%, then the GDP pie has to be sliced into more pieces. If the pie isn’t growing faster than the population, then everyone gets a smaller piece. In other words, the effect on individual Americans is even more pronounced than raw GDP data would lead us to believe. In the 3rd quarter of 2008, real per capita GDP fell by 1.5% to $38,412 per person (adjusted for inflation and expressed in 2000 dollars). That’s a decline three times as bad as the government’s raw GDP data.

This is the third quarterly decline in real per capita GDP in the last four quarters. Only the second quarter of 2008 had a small gain of 1.8%, thanks to the fiscal stimulus package. Real per capita GDP is actually lower than it was in the 3rd quarter of 2007. And all experts agree that the 4th quarter of 2008 will be much worse.  Since real per capita GDP is a much better gauge of how the economy impacts individual Americans, I use this for my definition of a “recession.”  By this definition, America has now endured a full year of recession, and it promises to get much worse.

The trade deficit continues to be a huge drag on real per capita GDP. Were it not for the trade deficit, 3rd quarter real per capita GDP would have been 6.0% greater at $40,733 per person. (Imports are a subtraction from GDP in the BEA’s calculation.) If the next president is looking for a way to turn the economy around, the trade deficit would be a great place to start.

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* – Annualized 3rd Quarter Actual GDP, expressed in current dollars, was $14.420 trillion, compared to $14.295 trillion in the 2nd quarter.  However, “real” GDP, which is adjusted for inflation and expressed in 2000 dollars, was $11.712 trillion, compared to $11.727 trillion in the 2nd quarter.

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7 Responses to Real Per Capita GDP Falls 1.5%, Recession Now One Year Old

  1. oldbogus says:

    “If the next president is looking for a way to turn the economy around, the trade deficit would be a great place to start.”

    Unfortunately, the simplest way to address this is by using tariffs. But this would be illegal under our “free trade” agreements. In fact, doing much of anything about trade deficits is forbidden.

  2. Stormy says:

    Pete,

    Thanks for the comment on AngryBear. Deeply appreciated. Spot on.

    We agree on Ricardo. Although some do not view comparative advantage as a dynamic process, I do–and that view is shared by international trade “experts” who constantly are trotting it out as justification.

    When viewed as a dynamic process, well before “equilibrium” is reached, the present system will collapse. The disequalibria are simply too large and too sudden.

    If you would like to do a guest post here, I am inviting you to do so.

    I need all the help I can get. Read Reich, for example, and how he frames the present debate: Trade plays no part at all. The left is as guilty as the right.

    Globalization has proceeded far too fast and without the safeguards that would have allowed reasonable growth and adjustment on all sides.

    I posed a challenge to all the economists on Angrybear: To show that well before equilibrium is reached via comparative advantage/Ricardo, that the present system would collapse.

    The only response I got was the assertion that the argument for comparative advantage is static, that it assumes an unrealistic conditions. Au contraire, trade “experts” who are presently happily esconsed in academia argue that it is dynamic.

    Email me and I will send you my challenge and the only response I got.

    I think I know how to demonstrate my assertion mathematically, but I need some help.

    Just too old to do this anymore.

  3. Stormy says:

    Sorry, mistyped my email address. Should be angrybear.blogspot.com

  4. Pete Murphy says:

    Oldbogus, tariffs are not “illegal.” I’m sure you’re referring to World Trade Organization rules and, of course, the U.S. is a member (the founding member) of the WTO. But the WTO has no real authority. The only action it can take, in retaliation to a member state raising tariffs in violation of its rules, is to first of all demand that the tariffs be dropped. If they are not dropped, then the WTO can authorize all of its other members to retaliate in kind with tariffs of their own. This is no more or less than any nation always had the right to do before the WTO came into existence.

    By the way, did you know that the WTO actually enforces protectionism in favor of two thirds of its member states? (But not the U.S., of course.) They do this to favor developing nations. Obama is criticized for speaking about “spreading the wealth.” The global king of “spreading the wealth” is the WTO, essentially operating a global welfare state that is funded by a sell-off of American assets.

    All we need is a president with the guts to tell the WTO to take a hike.

  5. Pete Murphy says:

    Oldbogus, a little more regarding tariffs: even if other nations retaliated with their own tariffs, it’s impossible to come out the loser when we are the one with the huge trade deficit. A tariff structure like the one I proposed in my book, scaled to population density and applied only to manufactured goods, would be ideal.

  6. Pete Murphy says:

    Stormy, I’ll E-mail you tomorrow. Gettin’ kind of late tonight.

  7. […] obvious to everyone else for months:  the economy is in recession, and has been for a year now, just as I observed last week. The economy slipped into recession in December 2007, the National Bureau of Economic Research, the […]

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