The Economy Might Be So Much Better Than You Think


In his book The Rational Optimist, Matt Ridley opens by writing, "Life is getting better, and at an accelerating rate ... The pessimists who dominate public discourse insist that we will soon reach a turning point and things will start to get worse. But they have been saying this for two hundred years."

I thought about that line this morning after seeing dismal economic numbers come out of Europe. Much of the continent is back in recession, where it has hovered for the last five years. Deep pessimism is beginning to take hold. "Just 9 percent [of French citizens] think their children will be better off financially than their parents," The Financial Times wrote. That is terrible.

Now a confession. After reading about how miserable Europe is, I set out to make a chart showing real GDP per capita growth for different regions of the world over the last decade or so. I expected it to show stagnation and decline -- isn't that all we hear about today?

Instead, after crunching the numbers, I got a chart that would make Ridley smile:

Source: Economic Research Service International Data Set.

Real GDP per capita is higher now than in 2000 for every major region of the globe. Including, yes, Europe.

Now, there can be several explanations here.

One is that, while we are constantly bombarded with stories of economic despair in Greece, Spain, Cyprus and the like, we hear far less about the economic miracle stories of, say, Africa or Vietnam over the last decade. This isn't surprising: Fear sells in the media. But for every economic horror story, you can almost always find one remarkable growth story to balance it out.

Another explanation is that real GDP per capita isn't a very good way to measure prosperity -- employment and median income are likely better measures. Part of that is due to how the size of the economy is divvied up. The economy as a whole can grow while leaving huge swaths of the population worse off; indeed, that's happening now. In an interview a few years ago, Reuters managing director Chrystia Freeland told me: "For the first time in a long time in America, how the pie is distributed probably has a bigger impact on the standard of living of the ordinary American family than growing the pie."

But maybe Ridley is right. The pessimists dominate the discourse, but take a look around -- a long view, across the world -- and things might be far less ugly than you think. Blogger Cullen Roach recently wrote:

I am a big believer that there are more people waking up in the morning saying "I want to be smarter and better than I was yesterday" than there are waking up saying "the world is doomed, I should build a bunker and hide out". That's just my general view of things. Maybe I am wrong, but I don't think so.

I don't think he's wrong.

How about you?

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