2nd Qtr. GDP Hints at Slow-Motion Depression

The Commerce Department released it’s latest revision to 2nd quarter GDP yesterday, cutting it from an annual growth rate of 2.4% to just 1.6%.  So I’ve revised my figures for real per capita GDP, both with and without stimulus spending.  (It’s important to track the latter as an indication of what’s happening in the underlying economy, and what will happen when the stimulus spending ends.)  Here’s the updated chart:

Real Per Capita GDP

Strip away the stimulus spending, and real per capita GDP (GDP adjusted for population growth) fell at an annual rate of 3.8%.  This is faster than the rate of decline during any quarter of the financial melt-down that took place from the 1st quarter of 2008 through the 3rd quarter of 2009.  Real per capita GDP, with stimulus spending factored out, is now down by 8.7% from its peak in the 4th quarter of 2007.  Over the last five years, dating back to the 3rd quarter of 2005, real per capita GDP with stimulus spending removed has risen in only five quarters out of twenty. 

GDP declines during the Great Depression were much worse:

  • 1930:  – 8.6%
  • 1931:  – 6.4%
  • 1932:  – 13%
  • 1933:  – 1.3%

A decline of 3.8% (with stimulus spending factored out) doesn’t rise to these levels.  But a decline of 8.7% from its peak 2-1/2 years ago does, although it’s happening at a slower pace.  So it begs the question:  is the U.S. trapped in a slow-motion version of the 1930s Great Depression?  As the stimulus spending winds down by the end of this year, we’ll have a better idea.  But given the huge decline in the housing market following the expiration of the tax credits, the soaring trade deficit, the slow-down in manufacturing and rising first-time jobless claims, it’s not looking good.

5 Responses to 2nd Qtr. GDP Hints at Slow-Motion Depression

  1. MikeF says:

    Pete, Thank you for reporting “REAL PER-CAPITA GDP,” rather than a gross accounting of the same number.

    When 10 people sit down to eat the same chicken that 5 were accustomed to; getting an equal share losses some of its importance.

    If GDP is adjusted for inflation, per-capita share, and accumulated debt, the U.S. will NEVER exceed $14 Trillion again.

  2. zorach says:

    I would go farther and say that even per-capita GDP is a basically useless figure…and I think it’s a mistake for us to focus on maximizing or increasing GDP or growth of GDP.

    We need to adjust for far more than just inflation and accumulated debt too. Although our GDP has been “growing” for years, certain aspects of our wealth and quality of life have been going down hill. I also think that it would be possible for us to strengthen our economy while reducing our GDP.

    I think we need to completely abandon GDP as a measure of wealth and prosperity, as I explain here: Why GDP (Gross Domestic Product) is a Poor Measure of Wealth and Prosperity.

    You seem to have a critical mind, from what I’ve seen in this blog…let me know what you think of those ideas.

  3. MikeF says:


    After five years of nearly continual study of American economics, a book, more than 1100 articles, and countless radio interviews and public speaking engagements, I realized that I was attempting to push a rope. My message was and is, “Live simple, live free, and live well,” which incorporates all of your suggestions.

    In the end I came to the studied conclusion that the only plan that humans have ever had was to live off the resources of this planet at the highest consumption level possible until the resources no longer support our lifestyle. At this point and time, the resources no longer support our lifestyle. And THAT is why REAL PER-CAPITA GDP cannot be increased. We have reached zenith for the mathematical premise of an exponential growth – debt based capitalism system to continue.

    So therefore, real per-capita GDP does hold EXTREMELY important value in measuring the limits of our impossible economic model.

    I agree with your solutions, and those who embrace the independent, live simple model will be best situated for our continual decline. However, only the pain of limited resources and continual unemployment will create the paradigm shift that you suggest. There are precious few volunteers.

  4. zorach says:

    That’s a really interesting idea and when I think about it it seems to be compellingly true. Do you think that we are at the “Zenith” or do you think in some sense we have passed it–i.e. we would need to actually lower GDP to achieve a sustainable society?

    I noticed on a website that your book is for sale in a shop in Tremont, OH. Are you in the Cleveland area? I used to live there, and in many respects, I think it was living in that region that made me start to think about economics in unorthodox ways.

    I’m not sure I agree though with your idea that “the only plan that humans have ever had was to live off the resources of this planet at the highest consumption level possible until the resources no longer support our lifestyle” — I don’t believe that most people really want that. I think it’s just that there’s a social and economic machine cranking away which has forced its culture onto large numbers of people. But I think people don’t really care about consumption–they care about quality of life–which can often be lower with lower consumption. There are plenty of examples of contrary plans…both within and outside the discipline of economics. Virtually everyone who is interested in sustainability would agree with the idea that we can’t sustain perpetual growth of GDP.

    I think that few intelligent economists are still stuck on the old bandwagon. too The problem is that the debate hasn’t caught up to news sources. The Wall Street Journal publishes articles almost daily, talking about GDP and growth, and the policies are still based on these old and solidly refuted ideas.

    • Pete Murphy says:

      Zorach, I agree that our single-minded focus on macroeconomic indicators like GDP is pointless and even destructive.

      I also agree with your comment about people wanting a high quality of life, but would caution that lower per capita consumption – the approach now advocated by a growing number of economists now focused on “happiness” instead of consumption – isn’t necessarily the best answer. The problems of environmental degradation and resource depletion are the result of total consumption: per capita consumption multiplied by the population. The problem is not that some of us enjoy a high standard of living. The problem is the sheer number of us who want to do so. It’s simply not possible. The focus needs to be on reducing our population to a level at which all can sustainably enjoy a high standard of living.

      My focus is on injecting into economics a new theory of a relationship between population density and per capita consumption that explains how everyone’s micro-economy can actually be improved not through growth (which depends heavily on population growth), but through reducing the population to a level at which everyone can enjoy a high standard of living. Economists who advocate reduced per capita consumption don’t explain how people will make a living in such an economy, since per capita employment and per capita consumption are inextricably linked. Nor do they explain how we can dial back to a simpler time without also back-pedaling on the many advancements that have enhanced the quality of our lives. Can we all live idyllic lives, living off the land on small farms, but still have available to us the medical technology that has nearly doubled our life spans? It’s not at all clear that that’s possible.

      My own estimate is that the U.S. needs to reduce its population by at least half, and that the world population needs to shrink to about 1.5 billion people (from 7 billion today) in order for all people to enjoy a high standard of living and, more importantly, as you’ve pointed out, an even better quality of life. Just imagine how much our quality of life would be improved with that many fewer people straining our resources and environment.

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