Why Do We Pay So Little Attention to Per Capita Measures?
According to today’s advance estimate from the Bureau of Economic Analysis, U.S. real GDP expanded at an annual rate of 3.2 percent in the fourth quarter of 2013. That brought GDP growth for the entire year to 2.74 percent, nearly equaling the 2.77 percent of 2010, which was the strongest since the recovery began. As the following chart shows, most of the growth came in the second half of the year.
The biggest driver of the expansion, as the following table shows, was personal consumption expenditure. Consumption contributed 2.26 percentage points to GDP growth, the most in three years. Export growth was also exceptionally strong, contributing 1.48 percentage points, while imports barely changed. The contribution of investment to GDP growth was down sharply from the preceding quarter. The negative contribution of the government sector, which has been shrinking steadily under the impact of federal austerity measures, took an unusually large bite out of GDP in Q4.
The return to stronger GDP has been widely cheered as a relief from the economic stresses of the Great Recession. However, if higher living standards are what we want, it is strange that we pay so little attention to per capita GDP. It is a commonplace of development economics that the living standards of a poor country cannot rise unless its GDP grows faster than its population, but we seem to forget that point when we talk about high-income countries.
Does population really make a difference for slow-growing advanced economies? Yes, it does. Even for a country like the United States, where population growth is now under 1 percent per year, GDP per capita lags behind total GDP by more than you might think when we compound growth rates over time.