a clarification on Keeping Score

I didn’t proofread my Keeping Score entry too well yesterday.  I wrote the entry the day before, re-read it quickly yesterday morning and pushed the Publish button.

Anyway, the post contained a section on economic growth that refers to “Washing,” which should have been “Washington.”  My point, if there was one, wasn’t that clear, either.

It’s that maybe Washington has always been the swamp we perceive it as being today, but that it just didn’t bother the country as much way back when.  How could that be so?

Let’s say that a smoothly functioning government can add 1% to real GDP growth per year and a bad one can subtract 1% (I’m just making these numbers up–showing why I probably shouldn’t have written about this at all).

During the “golden age” of US growth in the 1950-1980 period that some look so fondly back to, real GDP averaged about 4% per year and inflation about 5%.  So nominal GDP grew at about 9% annually.

Compare that situation with today.  Real GDP is averaging about 2% and inflation about 2%, as well.  That makes a total of 4%.  (The reasons:  aging population + the countries whose industrial structure was destroyed during WWII rebuilt.  So we stopped being the only game in town and had real competitors again.)

If we restore the 1% I’ve hypothesized (daydreamed) that Washington subtracts through corruption and maladroitness, real GDP would have been 11% higher in the old days but 25% higher today.  Put another way, when we were growing at 10%, a 1% subtraction gets lost in the shuffle;  when we don’t have many percentage points to lose, that 1% becomes much more important.