Monday, July 10, 2006

The Eurozone's Too Modest

GDP growth is a wiley old indicator. It's heavily relied on but conceals a multitude of sins. We're all familiar with the received wisdom - the US has had several years of sustained economic growth while Europe is stagnating. Well, news from the Economist (paper version) is that since 2000 European per capita growth has kept pace with US growth. Why the disjunction between the received wisdom and the truth?

Actually there are a couple of reasons. The first is that Europeans always underestimate their GDP and later revise it upwards. The Americans consistently do the opposite. Thus, according to Economist, from 1999 - 2004, the US initially reported growth of 3.2% but later revised it to 2.8%, while the Europeans reported growth of 1.6% but revised it up to 2%.

Still you might say, the US had growth of 2.8% compared to Eurozone growth of 2%. How can the Economist then say GDP per capita was equal. The answer is that the GDP figures are productivity as a whole. The whole pie in the US grew more. The trouble is, so did the population, so the bigger pie had to be split between more people. The European pie grew less but the population stayed the same or declined so, per person, Europeans got richer.

There's another point to make too. The wealth created in the Eurozone was more evenly distributed than in the US so more people got somewhat richer whereas in the US a few people got a lot richer. I know which I'd rather have.

No comments:

Post a Comment

Google+ Followers

Google+ Badge