First Quarter Per Capita GDP Declines 0.5%

Yesterday the Bureau of Economic Analysis released its first estimate of GDP (gross domestic product) for the first quarter of 2014.  Economists expected a low number – like 1.1% growth – but what we got was even lower – 0.1%.  Annualized GDP was $17.15 trillion, barely beating last quarter’s figure of $17.09 trillion.

But that’s just the size of the pie – the only thing macro-economists are interested in.  They give no consideration to how many people are sitting down at the table, and whether everyone’s slice has gotten smaller.  Thanks to population growth during the first quarter – another half million people gathered around that pie – everyone’s slice (on average) shrank at an annualized rate of 0.5%.   Here’s a chart of GDP growth, by quarter, since 2005:  Change in Real Per Capita GDP.

For macro-economists, if the pie gets smaller, they call that a recession.  For you and me – real people – if our slice gets smaller, then it’s a real recession for us, whether economists make that call or not.

Undoubtedly, bad weather in the first quarter played a role in this decline, but I’m skeptical that it was as significant as economists would have us believe.  With an average household income of around $50,000, most Americans are doing well to merely put food on the table, clothes on their backs and a roof over their heads.  Those things don’t stop because of bad weather.  And their utility bills (which are included in GDP) skyrocketed.  For wealthier Americans, the bad weather provides incentive to travel south.

And lately I’ve begun having even more doubts about how GDP is calculated and whether it’s a decent gauge of the health of our economy.  Consider housing.  If I spend $1,000 a month for a mortgage on a 2,000 square foot home with a yard in the ‘burbs, and someone else spends $1,000 a month for an apartment a quarter of that size – with no yard – in the big city, do we both contribute equally to the economy?  Macro-economists who calculate GDP say yes.  But the money spent on a single-family home clearly generates more economic activity in the construction, furnishing and maintenance of that home than the same money spent on a small apartment.

Or consider transportation.  If I spend $200 a month to own, drive and maintain a car, haven’t I contributed more toward job-creation than someone who spends $200 a month on bus fare?

My point is this:  as society becomes more densely populated and per capita consumption declines as the population becomes more urban – moving from homes into apartments, eschewing cars for mass transit, and over-paying for services in densely populated urban jungles – GDP simply measures the money spent and not whether it was spent on products and services that are more labor intensive, thus generating more jobs.

Also, real GDP (which is what the government reports) is adjusted for inflation.  But what is inflation?  If ten people live in 500 ft2 apartments and ten live in 2000 ft2 single-family homes today (each paying $1,000 a month), while ten years from now those figures have changed to fifteen in apartments and five in single family homes (thanks to population growth and more crowding), and the price of each has remained the same, then the government still says no inflation has taken place.  However, in reality, the average price per square foot of dwelling space that these twenty people are paying has risen by 43%.  A true measure of the job-generating economic activity would reflect that decline, but GDP doesn’t.  It stays the same.

In this scenario, on average, the people have gotten poorer, even though their incomes may have held steady, because they’re getting less dwelling space for their money.  But macro-economists who measure nothing but money spent, say that we’re just as rich as we were before because we’re spending the same amount of money, and rent and home prices have held steady.

So these tiny increases in GDP completely obscure the fact that we really are getting poorer and our quality of life is declining as more and more of us trade an uncrowded life in suburban and rural America for more crowded conditions in the cities.  It’s a hidden cost of worsening overpopulation.

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