On the Nature of Economic Growth

My last post was a basic investigation into a simple question:  would “tax the rich” fix our deficit and or debt?  It generated a lively thread over on my Facebook page, but a lot of that discussion went well beyond the scope of my simple question.  All that debate got me thinking:  in a more-or-less free market economy like our own, can you discern the impact of tax rates or government spending or politics or anything else in the growth of our economy?

To answer that question I went dredging the web for data.  I started by finding a table of U.S. GDP from the end of 1929 through the present in inflation-adjusted (real) dollars.  If you don’t use real dollars then “growth” can actually be simple inflation, so that’s a necessary adjustment.  I charted it using a Google spreadsheet and got this:

We see a basic exponential curve with some variation along the way and a blip at the end that represents the current financial crisis.  Hmmm… exponential…  That made me wonder how much of our growth is due to nothing more than having MORE PEOPLE and therefore MORE WORKERS.  To answer that question I grabbed census data from 1920 to 2010, ran a linear interpolation for years in-between, and used those numbers to create the following graph of Real-Dollar GDP per Capita:

Wow.  That’s *almost* linear, but perhaps it could be the early portions of an exponential growth curve.  Regardless of that, however, what can we conclude?

Tax rates varied wildly over the range, but the trend is almost linear.

Government policies varied greatly, but the trend is almost linear.

Wars and recessions came and went, BUT THE TREND IS ALMOST LINEAR.

I can’t draw conclusions from this about what are really the biggest drivers of economic growth (my first guess is progress via science and technology) but I *can* see that it seems to vary negligibly based on who is in power, what the tax rate for the rich is, or most of the other political positions people tend to take.  So maybe one position *IS* better than another. Fine.  I’ll give you that.  On the other hand, the impact of any particular position seems to be insignificant in the larger sweep of history in terms of economics.  It’s noise in the long-term trend.  I don’t know about you, but I find this FASCINATING and a bit unexpected!

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