Wednesday, February 2, 2011

Long-Term GDP Growth Trend

That's GDP growth adjusted for inflation. I've started the chart in 1950 because the data was really noisy before that point. 60 years of data should be plenty anyway.

Note the trend line in red. That's probably the single most important factor for long-term investors. Where is it headed? I'm not talking next year. I'm talking 20-30 years from now. It does not look encouraging.

Jeremy Siegel thinks we should plan for long-term growth of 3% to 4% (the growth we saw during the dotcom and housing bubbles). I'm just not a believer.

He also says that economic theory predicted that real yields should approximate real gross domestic product growth. He thinks long-term TIPS are in a bubble because he expects 4% growth. I don't.

One of us is going to be wrong, quite possibly very wrong.

If I am wrong to lock in a 2% rate on 30-year TIPS above and beyond inflation then being wrong can only help me. I stand a better chance to actually get paid in full if Jeremy Siegel is right about the future of our economy.

On the other hand, if I am right about the economy and Jeremy Siegel is wrong, then heaven help all those who took his optimistic advice. They won't even see it coming. It would not be the first time.

Stocks for the Long Run (Jeremy Siegel)

Some critics argue that the book uses a perspective that is too long to be applicable to today's long-term investors who, in many cases, are not investing for a 20–30 year period. In addition, Yale economist Robert Shiller, who wrote Irrational Exuberance (Princeton, 2000) warns that even a 20 or 30 year holding period is not necessarily risk free. This is because the 20th century, on which many of Siegel's conclusions are based, was the most economically successful century in the short history of the United States and will not necessarily repeat itself.

See Also:
GDP Exponential Trend FAIL

Source Data:
BEA: National Economic Accounts


Troy said...

It's my thesis that since we had just 150M people in 1950 we had the room and untapped land to put them to work.

Eg. peak US oil production being in 1971 etc.

We also had an industrial sector so far ahead of everyone else's in 1950.

It's the primary and secondary sectors that support the tertiary and quaternary sectors.

I don't pretend to have any clear vision where we're going but my general impression is that we've got too many "uneconomical" people now and too many promises made to them.

If we had a eurosocialist economy with eurosocialist progressive taxation, we would be fine, but we don't, and therefore our economy has too much investment in parasitical capitalism and too much commitment to high land valuation.

(I believe the after-tax wage level and land valuation are in a zero-sum relationship, and taxes are at historic lows now)

I think so much of our productivity growth has been replacing factory floors with a warehouse full of stuff from China. This certainly gives us more wealth per dollar input, but at the cost of long-term economic security as the Chinese continue banking the $200B+ surpluses every year.

One odd statistic is for 2010 the trade surplus with China is greater than our entire ag sector production.

How does that work??

It seems that the PTB have been floating debt to keep the party going.

Chart: Consumer, Corporate, Government Debt / GDP

1940-1950 Big Debt
1950-1960 Flat Debt
1960-1970 Down Debt
1970-1980 Flat Debt
1980-1990 Big Debt
1990-2000 Flat Debt
2000-2010 Big Debt
2010-2020 Bigger Debt

All this debt has to go to wages or no inflation. That's my mantra and I'm sticking to it.

Troy said...

> after-tax wage level and land valuation are in a zero-sum relationship

oops, bad edit. after-tax wage level and land valuation being in lock-step, not zero-sum

Troy said...

4000 yuan/mo is a solid salary in China.

About what 12/hrs a week at In n Out or 20 hrs/week at Target pays here.

Granted, the yuan is on track to hitting 4 by 2020 or so, but giving 500 million working-class Chinese a 33% raise in buying power isn't going to do much for us middle-class schlubs' cost of living, especially if peak oil starts impacting us.

Warren Buffet's BN buy is an interesting one since it connects our breadbasket to the port of Seattle (plus also the AT&SF part connects LA to the Midwest, too).

A strengthening yuan means China will buy more food from us for the same $. Uncle Warren made a play to carry that increase I think.

Stagflationary Mark said...


Just How Big Is Buffett’s Burlington Northern Bet?

Warren Buffett calls his $34 billion purchase of the remaining shares of Burlington Northern Santa Fe railroad “a bet a on the U.S. economy.”

Was the bet for or against? D'oh!

Jazzbumpa said...

Mark -

I've looked a lot at
GDP growth and agree completely.

Troy is on to something, too.

Plus, there's this.

Grim, and more grim.

Stagflationary Mark said...


Payrolls turned into nonfarm payrolls.

Automation and Inequality

I'm surprised we haven't seen nonmanufacturing payrolls yet as we head down the path to nonpayroll payrolls. Sigh.

Jazzbumpa said...

It's the real road to serfdom.