ARBOR OUTLOOK: Muted growth, GDP history and gas lines
“The extraordinary experience of the Golden Age left us with the unfortunate legacy of unrealistic expectations about our governments’ ability to deliver jobs, pay raises and steady growth.” — Marc Levinson, in a recent Wall Street Journal essay
I was born in Chicago in 1956, one-third of the way through the most astounding 25 years of economic growth in American and world history, a period which started in 1948 and lasted until 1973. The Chicago Carpenters’ Union protected the interests of my dad and his peers, even while management garnered a healthy profit. We enjoyed health and dental care through his job at a minimal cost. Six out of every 10 Americans relied on some type of pension plan coverage in the late 60s, and my dad was among that number. With only a small loan I paid for a college education.
Aspirational government projects like the interstate highway system and the space program were examples of our collective capability. Everything seemed within our reach, even the moon.
Then I graduated and began job hunting in a suddenly struggling economy. My mother became an entrepreneur by necessity when construction slowed and my dad’s carpentry assignments dwindled. Unemployment and gas lines grew like unsightly weeds in a previously well-tended economic garden. The climate of limited employment opportunities was anathema to that of my childhood era.
GDP growth has averaged 3.22 percent annually from 1947 to 2016. But in the “Golden Age” of 1948-1973, GDP growth was less than 5 percent only six times. By comparison, we’ve only experienced GDP growth over 5 percent 11 times since 1990, and not a single of those growth years came in the last decade. That said, there were also more years between 1948-1973 when GDP growth was significantly negative, meaning the economy actually shrank. Today, our growth is admittedly much more muted, but far more stable. The downturns (with the obvious exception of the Great Recession) are not nearly so pronounced now. Whether by intent or accident, we have essentially traded growth for stability.
What’s the cause for the slowdown? A number of factors are likely involved: an increasingly active Federal Reserve, which attempts to smooth out economic outliers; an aging population, which translates to fewer goods and services being purchased; and the rise of economic sophistication and infrastructure in developing countries like China and India.
With the exception of the tech boom years in the 90s, which were arguably not as booming as many at the time thought, the American economy has never truly recaptured those vibrant halcyon days before the slowdown of ’73. Wages have stagnated. Pensions have largely disappeared. Manufacturing has declined. In short, long term GDP growth has slowed.
Next week: What type of growth will characterize the American economy in coming years?
Margaret R. McDowell, ChFC, AIF, author of the syndicated economic column "Arbor Outlook," is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.