Why Jeb Bush is Wrong to Focus on Growth Alone
Jeb Bush has made it clear that growth is going to be a big part of his campaign. Before the thinkpieces start flowing on whether he can achieve it and how he hopes to achieve it, we should take a step back and ask ourselves what exactly we mean by growth, and why we think it's important.
1. Overall GDP
When politicians and media people talk about growth, they are normally referring to increasing the size of the country's overall Gross Domestic Product. Since 1970, US GDP has increased by 233% in inflation-adjusted terms. Here is that growth alongside growth in the Nordic countries during the same period:
On average, US GDP grew 2.9% per year over the period, more than every Nordic except oil-rich Norway.
Despite the fixation on this metric among economic pundits and the Bush campaign, it's very hard to understand what's important about it. Because it does not take into consideration population dynamics, it's trivially easy to run up GDP by simply adding population at a fast rate, either by having a high birth rate or having a high net immigration rate.
And, in fact, this is precisely what the US does.
I am all for reasonably adding population through immigration and basically neutral on birth rates, but increases in GDP that result from these things do not really reflect much on the success of a country's economic institutions (tax levels, distributive policies, etc.) or the average well-being of those in the society.
2. GDP Per Person
To correct for differences in population dynamics, a better growth metric is GDP per person. Since 1970, US GDP per person has grown 116%.
On average, US GDP per capita grew 1.8% during this period, putting it slightly above Denmark and Sweden, but below Norway and Finland.
This is a far superior metric to overall GDP. Because it tracks output per person over time, it also tracks something significant about the average well-being of people in a society. Additionally, by controlling out population changes, this metric will more closely track how successful a country is at increasing its productivity, not just its number of people.
Yet, this metric too has its problems. Most importantly, it does not do a good job of reflecting differences in work hours over time. A country that finds ways to be more productive on an hourly basis may use that extra productivity to take home more income. Or, it may use it to buy extra free time away from work. Which is the right thing to do depends upon how much you value longer vacations, shorter workdays, and more leisure time more generally. The GDP per person metric effectively penalizes the countries that go the leisure route, even though that's a perfectly defensible decision.
3. GDP Per Hour Worked
To correct for differential leisure dynamics, we can track growth in GDP per hour worked. Since 1970, US GDP per hour worked increased 102%.
On average, US GDP per hour worked increased 1.7% over this period, less than every Nordic country.
The reason the Nordics do better here than the per-person metric is that they have reduced work hours more over this period than the US. In fact, if we divide total hours worked by total population, the US has actually increased work hours on a per-person basis since 1970.
Over this period, US hours worked per capita increased by 52 hours, or 7%. For comparison, Finland's hours worked per capita decreased by 225 hours, or 23%.
There are many reasons for this change in hours. For instance, the US significantly increased its female employment-to-population (EPOP) ratio over this period, which greatly added to total hours, while the Nordics (whose female EPOP in 1970 was already near where the US female EPOP got to in 2013) did not add as many female work hours (though female EPOP grew there as well). Demographic shifts contributed also.
The main reason for this difference though is that Nordic workers simply cut their hours by a much greater magnitude than US workers.
Over the period, US workers cut their work time by 123 hours, or 6%. In Norway, work time was cut by 427 hours, or 23%.
It's common for US pundits to puzzle over Keynes failed prediction that increased productivity would deliver us greatly increasing leisure, but it isn't actually a failed prediction everywhere.
In an ideal world, discussions of ideal work levels would be detached from discussions of unemployment, growth, and distribution. But in our narrow political frame, all of these things are mushed together, and tend towards the view that we must have more work hours to solve all the other stuff. This, of course, isn't true. You can reduce overall work hours (through longer vacations and more paid leave) while reducing unemployment, increasing GDP/hour, and even boosting the incomes of the poor and working classes (despite reducing work hours) by increasing transfer incomes. Yet, because of market income fetishism and simplistic discussions of GDP growth, we don't seem to have the political imagination to even consider such a program.
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