U.S. Economic Performance During the Clinton and Bush Years

Every once in a while, I take a look at the basic statistics concerning economic growth in the U.S. vs. the other nations of the G7 (the only reasonable comparison group). Those other nations are Japan, Germany, Great Britain, France, Italy and Canada, and I'll call those nations the G6. As a general rule, Americans are a bunch of uninformed hysterics when it comes to evaluating the performance of their own economy, and this is especially true when a Republican is president and the main source of information is the media we have (instead of the media we wish we had). The best way to assess the strength of the U.S. economy is to go straight to the relevant statistics and then look at them over time and over place. If you are a card-carrying anti-Bush hysteric, you will not find this to be a useful exercise because if the numbers make Bush look good, you'll decide that the numbers are hiding the truth, and you'll cite someone who has reanalyzed them to show how terrible things really are. This is just like right wing poll watchers who, before the election last Tuesday, analyzed "poll internals" to show that, in truth, the race was much closer than it seemed and that McCain was about to win. It is understandable to me why people do this. Most people are simply unaccustomed to allowing the data to influence their thinking, so they adjust the data to fit what they fervently wish were true. You should try hard not to do that. Even though data can be flawed, the best approach is always to seek out the best source of information and to then consider the possibility that what the numbers show is the closest approximation to the truth we have.

A basic indicator of overall economic performance is the annual percent change in GDP. As a general rule, a growth rate of 1% is weak, 2% is fine (but nothing to get excited about), 3% is very good and 4% is probably too good to be true. This general rule applies to advanced industrialized economies, not to emerging economies (where much higher growth rates are to be expected). Let's take a look at GDP growth for the U.S. and for the G6 for the Clinton years and the Bush years. The values for 2008 are projected since the final numbers are obviously not in yet (data from the International Monetary Fund):


What you can see is that GDP growth in the U.S. generally exceeds that in the G6, and this was true for both Clinton and Bush. Also evident are the results of two bubbles that popped. Both popped on George Bush's watch, though Bush had nothing to do with either one. The first bubble -- the dot-com bubble -- popped around 2000 and caused a recession in 2001. The GDP figures for the last few Clinton years were probably inflated by that bubble, though he clearly deserves no blame for that. In addition, even without the effects of the dot-com bubble, economic performance during the Clinton years would have been very good. The average percent increase in GDP for the U.S. during the Clinton years was 3.71%, whereas it was 2.3% for the G6.

When the dot-com bubble burst and al Qaeda attacked in 2001, the U.S. economy (and the world economy) faltered. Bush introduced tax cuts in 2001 and 2003, and that probably helped to restore economic growth to more typical levels. Now, a second bubble (the housing/ financial bubble) is popping. This bubble was much longer in the making, it was not George Bush's fault, and it will probably take longer to play out. Even though two bubbles popped on Bush's watch, the average GDP growth during the Bush years comes in at 2.23%, whereas the corresponding value for the G6 is 1.69%. If you are an anti-Bush hysteric on the issue of the economy, you should realize that economic growth has been good on his watch despite two burst bubbles (and U.S. economic growth was considerably better than that of the most reasonable group of comparison nations). Perhaps you have a problem with that, but it is obviously nothing to get hysterical about.

A point that is not understood by many is that the percent change figure makes things look better for the G6 than they really are. That's because, on a per capita basis, the U.S. economy is larger than the economies of the G6. If percent growth in the GDP for the U.S. and the G6 were the same, then it would mean a larger absolute increase for the U.S. economy (even on a per capita basis) than for the G6 economies. The easiest way to understand this is to think about your income and the income of, say, Michael Jordan. If your income goes up by 3%, you could take a decent vacation with the extra money. If his goes up by 3%, he could probably buy an island with his extra money. That is, the same percent increase translates into a lot more actual money if the starting value is high than if it is low. The starting value for the U.S. economy (on a per capita basis) is high compared to that of the G6.

So let's compare the U.S. economy to the economies of the G6 on per capita GDP. Although this is not an income measure per se, it is similar to a plot showing your income vs. Michael Jordan's income over the years. In a plot like that, there would be no "percent change" statistic at all; just the actual income values. Here are the relevant GDP per capita figures (corrected for differences in purchasing power across nations):


As you can see, the U.S. economy has been putting ever greater distance between itself and the other nations of the G6 throughout the Clinton years and the Bush years. This would have occurred even if percent growth in the GDP were same in the U.S. and the G6 (because the U.S. had a larger starting value at the beginning of the Clinton years). But the U.S. also had a higher percent growth, so the distance between the two was somewhat accelerated. It has been that way pretty much continuously since the Reagan years. At the start of the Clinton years, per capita GDP was about $5K higher in the U.S. compared to the G6. Now it is more than $10K higher, and these numbers have already been adjusted for inflation.

Many of you will react to these numbers by assuming that all of the spoils in the U.S. are going to the rich, whereas things are much more fairly distributed in the other nations of the G6. You'll understand, for example, that GDP per capita is an average figure, and an average figure will increase if everyone is getting better off or if only the rich are getting better off. And you'll assume that only the rich are getting better off in the U.S. It's not true, but I can't do everything in one post. I can, however, ask you a simple question: if you think it is true that only the rich are getting better off, what makes you think so? Most people will have heard a story about "stagnant wages" and conclude that's all they need to know. If you've heard such a story, did it come from the mainstream media, or did you investigate the matter for yourself? If you have not investigated the matter for yourself, you should. The data-based truth is usually more interesting than what you get from well-meaning reporters who unconsciously process information through a left-wing filter.