Great Graphic: GDP Per Capita Selected Comparison

<br /> Great Graphic: GDP Per Capita Selected Comparison – Marc to Market<br />


This Great Graphic was
used in a recent Bloomberg column by
former Minneapolis Fed President Kocherlakota, and now a professor at the
University of Rochester.
was a dove when he was at the Fed and remains dovish.
  He is concerned that the US economic
performance is, as he says, not what it seems.  By this, he means it is weaker than the GDP figures suggest.  He
acknowledges the US has grown faster than the other high income economies.
 He dismisses it because the US population has also grown faster, but the
participation rate has not.
He think two things
follow from this assessment. 
that if the US economy is not comparatively stronger
than it means that the Fed’s asset purchases are not more effective than in other countries. Kocherlakota
thinks this means that Fed should be more cautious therefore about
unconventional policies and their ability to substitute for conventional
monetary tools.   He does not specify an actionable course when the
zero-bound has been reached.
Kocherlakota argues that there is more that can be done to increase employment
for the prime age cohort  (25-54 yrs). 
 He does not offer specifics, but it
seems that this is the role of fiscal policy,
not monetary policy. 
I am not persuaded by Kocherlakota’s arguments.   Even if we were to accept as given
that US growth has not exceeded Europe or Japan’s by very much, that does not
mean that the Fed’s asset purchases were not more effective.     Consider the bang for the buck.  The
Federal Reserve’s balance sheet was roughly 25% of GDP.  The BOJ of
Japan’s is more than three times larger proportionate to its GDP.  If the
Fed achieved similar results as the BOJ, which Kocherlakota claims, with
considerably less resources, that also speaks to effectiveness. 
In addition, the
fact that the Fed’s unconventional path began not months or quarters, but years before the BOJ or the ECB’s asset
purchases is also meaningful. 
 When the Federal Reserve began its
asset purchases, interest rates were much higher.  Moreover,
 Kocherlakota may be mistaking the goal.  The Federal Reserve did not
call its asset purchases QE, but rather credit easing.  It was not offered
as a solution to low inflation.  Both the ECB and the BOJ are buying assets ostensibly to lift inflation toward its
respective targets.  
presents this chart of GDP per capita but then dismisses it because the US
outperformance is not as substantial as he wishes. 
   Population grew faster in the US than in the
other centers, and so did GDP per capita.  There is now roughly a five
percentage point gap between the US and eurozone GDP per capita growth over the
eight years captured in the chart.  This is
significant especially as it comes on top of the pre-existing gap in the US
performance is interesting for a
different reason.
  Its GDP per capita fell further than
the US during the crisis and recovered quicker.   However, its improvement
faltered, and the US has been able to
overtake Japan in the last two years.    Essentially what is happening in Japan is its economy is shrinking
slightly slower than its population is falling.  
The UK economy
was hit as hard as Japan by the crisis, in terms
of GDP per capita, and harder than the eurozone. 
 It did not experience that double dip that the eurozone did and since the middle of 2013, GDP
per capita growth has surpassed the eurozone’s.  Depending the how much
Brexit disrupts the economy in H2, its GDP per capita growth may surpass
Japan’s this year.  
argument that the US economic recovery is not so impressive is more compelling
when looking not at international comparisons, but in the context of post-WWII
US recoveries.
 Nevertheless, it is stronger than expected if one accepts
historical work of Reinhart and Rogoff (This
Time is Different
). Looking at the chart,
it is difficult to find support for the
other big interpretative framework offered by Summer’s “secular
stagnation” claim.


Great Graphic: GDP Per Capita Selected Comparison
Great Graphic:  GDP Per Capita Selected Comparison

Reviewed by Marc Chandler

August 24, 2016

Rating: 5

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