The GDP horse race

 

 

A Facebook poster writes: “Our GDP growth for the 3rd Qtr was 33.1 percent. We had the best economy ever until COVID and it is recovering well….Thank you Pres. Trump!”

 

At first glance, an annualized growth rate of 33% looks impressive.  It’s ten times the long-run growth rate.  Good news for Central Asian exporters.

 

But most of this growth is catch-up.  The economy tanked by 31% in the second quarter, thanks to the lockdowns occasioned by the pandemic. In the third quarter, as the pandemic slowed down, cities and states reopened their economies.  That’s why gross domestic product shot up.  (GDP is the market value of what the US produces. It’s the usual measure of the size of the economy.) The 33% growth rate is not a typical result for the Trump administration, despite the poster’s implications.

 

Another problem with the 33% figure is that it’s short-run.  It just measures how much growth occurred since the prior quarter.  As we’ve just seen, such growth may owe mainly to temporary events.  (At least, I hope that the coronavirus crisis is temporary.) 

 

To judge the success of Donald Trump’s administration, we’d like to gauge lasting changes in the economy.  We can do this by calculating the average annual rate of GDP growth over Trump’s four-year term and compare it to the performance of past presidents. 

 

Unfortunately, we have data only for the first three years of Trump’s term.  So, for comparison, I calculated the average annual rate of growth in GDP (adjusting for price changes) for the first three years of the first term of Presidents for the past 30 years.  This long-run growth rate was 3.2% for Bill Clinton, 1.9% for George W. Bush, .6% for Barack Obama, and 2.5% for Trump. 

 

The economy grew fastest under Clinton; but Trump did not do badly, if we exclude the pandemic.  Economic growth was weakest under Obama, but of course he inherited the Great Recession when he took office in 2009.

 

My calculations use data from the Bureau of Economic Analysis in the Department of Commerce of the US government.  The BEA is a treasure trove of free statistics.  You can check it out at bea.gov .

 

Of course, no one—not even the President—controls the US economy, so the newscast references to “the Trump economy” are misleading.  Neither is the size of GDP a precise indicator of human welfare.  But all that is fodder for another post. –Leon Taylor tayloralmaty@gmail.com