Real Per Capital GDP Over the Past Decade

I think I have an answer to the question Cactus posed in regards the claim from R. Emmett Tyrell :

For the past five years, per capita gross domestic product has grown at 11%. We are living through a vast global economic boom, and the Democrats seem completely unawares. In 2008 their presidential candidate will be moaning that we have lost a war and are economically in a hell of a mess. The Republican will only have to point to a healthy economy and the success of General Petraeus’s splendid army to win. Then the Democrats will whine that the Republicans stole the election from them. That is my prediction, and I base it on the evidence.

Cactus and yours truly need to rephrase our questions. Instead of asking Mr. Tyrell why not adjusted inflation, the question should have been – did you adjust for inflation. It turns out he tried to so if I had asked if he has money illusion, the answer would be no. Mr. Tyrell is at least guilty of unclear writing and failing to provide his sources. And as we shall see, his math skills are poor.

Our table compares 2007QII to 2002QII in terms of nominal GDP per capita, which is given by line 1 of table 7.1 from this source. It turns out that nominal GDP per capita rose by 25.73 percent, which prices rose by 15 percent. So I guess Mr. Tyrell took the difference between nominal growth (n) and the growth of prices (p) to get real growth (r). Let’s see: 25.73% minus 15% = 10.73% and rounding up. But that’s not the right way to do this. The correct formula is (n – p)/(1 + p) = 10.73%/1.15 = 9.32%. Of course, we could have gone directly to line 6 of table 7.1.

Besides bad writing and poor math skills, it would seem Mr. Tyrell has trouble putting things into a longer-term perspective – which gives me an excuse to graph real GDP per capita from 1997. The graph shows something that is not surprising to most people who have followed the US economy. After the late 1990’s boom in real income per person, we saw real income per person actually decline during the first one and a half years of the Bush Administration. Think about this way, real income per person as of 2007QII was only 9.22 percent higher than it was as of 2000QIV. It would seem that a 9.2 percent increase over 6.5 years sounds a lot less dramatic than an 11% increase over 5 years. During the last 6.5 years of the Clinton Administration, real income per capita grew by 17.3 percent.

We should also note that real income per person represents the mean not the median. The Census Bureau reports the median household income in 2005 CPI-U-RS adjusted dollars for 2005 was only $46,326 (less than $40, 3000 in 2000$). So the median family is receiving less than 10 percent more income than the average person. The $46,326 was less than the real median income for 2000, which was $47,671. It would seem whatever real per capita income growth we are getting is accruing to the well to do and not the median household. But would one expect Mr. Tyrell to both recognize this reality and to be honest to his readers about it?