U.S.

Real GDP/Capita 1950-2004

$40,000

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

U.S. ln(Real GDP/capita) 1950-2004

10.6
10.4
10.2
10.0
9.8 g(t) = ln(Y(t)) - ln(Y(t-1))
9.6
ln(Y(t)) = ln(Y(0))+tg(t)
9.4
= 9.28 + .022t
9.2 … if g is constant
9.0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

ln(GDP_r/pc)

1
 Natural logs and Growth

GDPt GDPt 1
g (t )  ln(GDPt ) ln(GDPt 1 )
GDPt 1

ln(GDPt ) ln(GDP0 ) g (t ) ln(GDP0 ) t g if growth is constant

t

a b t a linear function in t , slope b growth

U.S. ln(Real GDP/capita) 1950-2004

10.6
10.4
10.2
10.0
9.8 g(t) = ln(Y(t)) - ln(Y(t-1))
9.6
ln(Y(t)) = ln(Y(0))+tg(t)
9.4
= 9.28 + .022t
9.2 … if g is constant
9.0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

ln(GDP_r/pc)

U.S. ln(Real GDP/capita) 1970-1986

10.2
10.1
10.1
10.0
10.0
9.9
9.9
9.8
9.8
9.7
1970 1975 1980 1985

ln(GDP_r/pc)

2
 U.S. Real Business Cycles 1950-2004
De-trended Real GDP/capita: GRP - Trend
(assumes constant growth)
0.10
0.08
1973
0.06 2001
1953 1985
0.04
0.02
0.00
-0.02
-0.04
-0.06
-0.08
-0.10
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

U.S. Real GDP Growth 1950-2004

(assumes constant growth)

8%

6%

4%
1985

2%

0%

2001
-2%
1973
-4% 1953

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

3
 OECD ln(Real GDP/capita) Chained (2000) Dollars

10.5

10.0
US
9.5
Canada
9.0 Japan Belgium g = .027
Belgium
8.5 Mexico Canada g = .021

8.0 France g = .027

Japan g = .045
7.5
Mexico g = .0198
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
US g = .022

OECD Real GDP Growth

15%

10%

5%

0%

g_Belg
-5% g_Can
g_Fra

-10% g_Japan
1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 g_US

Standard of living growth is fairly constant…convergence?

Takeover/recovery?

Growth correlation and convergence: long run diminishment? convergence

to what?

Why and how “long run” growth? and is it, now, the long run?

4
Does a high standard of living lead to a high rate of growth?
Real GDP/capita (chained) vs. Growth
144 countries in 1980
25%
20%
15%
10%
Growth

5%
0%
-5%
-10%
-15%
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000
Real GDP/capita

Higher investment is positively correlated with real income…

Investment Share (Inv/GDP) and
Real GDP/capita (chained 2000)
OECD: 1950-2004
60000

50000
Real GDP/capita

40000

30000

20000

10000

0
0 10 20 30 40 50
Invesment Share

5
 Gov. Share of Real GDP vs. Real GDP

$30,000
$25,000
Real GDP/capita

$20,000
$15,000
$10,000
$5,000
$0
0% 10% 20% 30% 40% 50% 60% 70% 80%
Gov. Share

Gov. Share of Real GDP vs. Real GDP Growth

20%
15%
10%
Growth

5%
0%
-5%
-10%
-15%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Gov. Share

Does the government crowd out private investment, output, income

and growth?