WSJ: Revised Upward, Again (GDP, economic growth, marginal tax rates and prosperity)

This is getting to be a habit, albeit mostly a pleasant one. The government revised its measure of first quarter economic growth again yesterday to 3.8%, up from its previous estimate of 3.5%, which was above its initial estimate of 3.1%.

You may recall that the initial estimate inspired a great deal of fretting that the current economic expansion was heading south. But the 3.8% figure -- despite high oil prices -- matches the rate for the fourth quarter of 2004 and means that growth has now averaged close to a 4% annual rate for eight consecutive quarters going back to the passage of the Bush tax cuts in the second quarter of 2003. Most economists expect growth in the current quarter now concluding to be somewhat slower, but then they've misunderestimated this economy before.

These increasingly frequent, and substantial, revisions raise some questions about the accuracy of government statistics in our entrepreneurial, information age economy. The employment numbers have seemed especially odd the past couple of years, underestimating actual job creation. Personal income growth was also wildly understated at first last year. If the average CEO revised his company's earnings as often as the Bureau of Economic Analysis revises its data, the SEC would charge fraud. The Bureau needs to look anew at what it is, or isn't, measuring.

The other lesson is that too many economists and politicians continue to underestimate the incentive power of the marginal rate tax cuts on income, dividends and capital gains. In the spirit of July 4, we'll refrain from quoting the sages who've been predicting doom throughout our current prosperity; we're just happy to say they write for the competition.

I disagree with your assessment.

I believe that most Americans are looking around and saying: "I have a great house. I have a great car. I love my job. I've got plenty of toys. You know, I'm doing pretty well! But, I watch the News. I know I'm the exception. Most Americans have lost their jobs to outsourcing. I saw it on CBS. The deficit is huge, social security is being pillaged by George Bush. These are tough times and I feel bad for all those Americans who are not as fortunate as I am."

I believe over 50% of Americans feel this way.

Proof the US Economy is the Strongest

Here are the top ten countries in the world as ranked by the CIA for Gross Domestic Product Per Capita:

1 Luxembourg $ 58,900 2004 est.
2 United States $ 40,100 2004 est.
3 Guernsey $ 40,000 2003 est.
4 Norway $ 40,000 2004 est.
5 Jersey $ 40,000 2003 est.
6 British Virgin Islands $ 38,500 2004 est.
7 Bermuda $ 36,000 2003 est.
8 San Marino $ 34,600 2001 est.
9 Hong Kong $ 34,200 2004 est.
10 Switzerland $ 33,800 2004 est.

Now you'll note that most of the countries on this list are teeny-tiny little dots in an ocean somewhere. Luxembourg, which is a teeny-tiny dot in the middle of Europe, has an economy that looks quite nice until you realize that the US GDP per capita is multiplied by 691 times as many people as Luxembourg's. Switzerland is the "big" country in population among the other nine, and even its 7.5 million population is dwarfed by the USA's 295 million. Add up all the other nine and we still outweigh them by a factor of 15 times and have a much higher GDP per capita.

We start to see some bigger countries near the middle of the next ten:

11 Cayman Islands $ 32,300 2004 est.
12 Denmark $ 32,200 2004 est.
13 Ireland $ 31,900 2004 est.
14 Iceland $ 31,900 2004 est.
15 Canada $ 31,500 2004 est.
16 Austria $ 31,300 2004 est.
17 Australia $ 30,700 2004 est.
18 Belgium $ 30,600 2004 est.
19 United Kingdom $ 29,600 2004 est.
20 Netherlands $ 29,500 2004 est.

But even so, the combined total of population of all those ten countries and the earlier nine is still only about half that of the US, and the big countries come at the bottom of this list, a full 20% or more below the US GDP per capita. And where are the worker's havens of France and Germany?

21 Japan $ 29,400 2004 est.
22 Finland $ 29,000 2004 est.
23 France $ 28,700 2004 est.
24 Germany $ 28,700 2004 est.
25 Man, Isle of $ 28,500 2003 est.
26 Sweden $ 28,400 2004 est.
27 Aruba $ 28,000 2002 est.
28 Gibraltar $ 27,900 2000 est.
29 Singapore $ 27,800 2004 est.
30 Italy $ 27,700 2004 est.

Ah, there they are, over 27% (and $11,000) below the US. And the bad news is that while there is apparently a smoothing factor to prevent wild swings in GDP per capita from exchange rate variations, the fact is that overall the dollar's been strong compared to the currencies shown here in 2005. The dollar is up over 10% against the Euro, 6% against the pound, 4% against the yen. Odds are good that even before considering economic fundamentals (which favor the United States) the US will surge forward once again compared to the rest of the world.

-- Pat, brainster.blogspot.com/2005_06_26_brainster_archive.html#112003231397747637

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