Actual and Forecast Consumption Growth Rate -- GDP History and Projection

This is the third in a series of three postings -- first an introduction to the blog, second a quick review of historical anthropological consumption growth, and then the current post which connects prehistoric consumption to current consumption and projections of future consumption and consumption growth.
By choosing GDP as the metric of consumption, we have chosen to measure the monetary amount of the stuff we "ingest" in any particular period.  In the last post we examined the amount the world ingests in various periods, and how that annual consumption has varied during the last few millenia and centuries.

In this post I want to sharpen our time focus to the last two centuries, and the next few decades.

In particular I want to examine the historical RATES at which we have been growing (change in GDP per defined time unit), and the RATE at which we are planning to grow.  (For the philosophically minded among you (!), the change in consumption is a second derivative function.  I will probably have a meditation on rates and flows and stocks in later posts when we discuss metabolism and the possible limits on fundamental life processes like food and energy and ...)

This particular post will bring us up to the end of the twentieth century, integrate our current consumption growth with the growth of previous centuries and compare them with our "official" forecasts for future consumption growth.

During this post I will convert the consumption growth rates we have been discussing for previous centuries into average annual growth rates for those centuries. 

This procedure then allows us to use the common language of economists today, to connect current growth and projected growth with historical growth.  I will then begin to feel much more comfortable discussing current events like financial crises, budgets and the potential consequences of the world hedgemon's, and aspiring developing countries', emphasis on consumption (GDP) growth.

This particular post also introduces US GDP history and forecasts for the first time.  It is a precursor to planned future posts about

• Detailed discussions on the current and planned growth in US GDP, budgets and expenses
• Dissecting current and planned world consumption growth plans into regional and country segments, and commenting on the consequences of those plans.  

The first chart (click for larger picture) here looks at %growth every 50 years, during the last three centuries.  The further back one goes, the less reliable the data -- it is foolish to attempt to quantify individual annual data.  So I have taken half century data for the last three centuries and computed growth during those fifty years.

The half century growth chart for the last three centuries does not hold any surprises -- the growth rate starts very low and swings upwards sharply in the second half of the 20th century.  The 50 year GDP growth of about 900%/half century in the last fifty years of the 20th century, works out to an average annual growth rate of about 4.5%/year during those 50 years.

The second chart looks at growth rates every decade of the 20th century.  We entered the century growing GDP about 30% per decade, and we exited the century growing about 50% per decade.  A growth of 50% in a decade is approximately an average annual growth rate of about 4%/year during that decade.

In the the third chart here I have shown the average annual percentage change for each decade, and we find that the average annual GDP growth in each decade varied between 6%/year at the height of the WW2 world rebuilding boom to about 4%/year in the last two decades.

We are now into the language of main stream economists -- annual and quarterly reports.



The growth rate target currently considered to be a good world target is in the region of 3%-4%.  Central bankers currently believe anything much lower that about 3% leads to unemployment, and anything above about 4.5% leads to inflation.

Which brings us (at last!) to the detail we need to start discussing the GDP growth forecasts published by official scorekeepers like the IMF, the World Bank, the US Fed etc.

The first chart below shows world and US real GDP changes since 1970, and the current projection for GDP growth for the next two decades through 2030.  Note the similarity of the projection to the actual history, and to the average annual growth rate in the last two decades of the decade charts above, which uses the "International Dollar".   The "International Dollar" (a PPP measure) charts I have used to tie together millenia and centuries of consumption growth history and tie them to today's $2005 real GDP consumption growth vary by less than 0.5% in the second half of the 20th century.  What is even more interesting, the powers that be that run the world, our central bankers and our world leaders, are expecting to return to a 4% growth rate in the near future as we see in the chart below.  As we now know, about 4% is the highest sustained growth rate our human race has ever reached in our entire history.

The future looks bright -- or are they dreaming?

In other words, the forecast is BUSINESS AS USUAL. Our politicians and central bankers apparently see no storm cloud on the horizon, and if they do, they are certainly not committing them to numbers.  Or they see clouds ahead, but they are confident enough they can avoid them, and they have plans in place which will ensure a continuation of the fastest growth rate so far known to man.

The last chart for this post confirms the BUSINESS AS USUAL scenario.  Here I have plotted actual and projected GDP from IMF and World Bank in real $2005, together with trend lines out to 2040.  Note the projected US growth is faster than the actual growth between 1970 and 2010.  WTF?.  The world GDP is projected to reach $100 Trillion in 2030, and the US GDP is projected to reach about 23 Trillion, about 23% of world GDP in 2030, down from about 26% today.