I’ve periodically tried to explain that even small differences in long-run growth can lead to immense benefits, including huge reductions in poverty.
To illustrate the importance of higher growth rates, I sometimes inform audiences that the United States today would be as poor as Mexico if the American economy had grown 1-percentage point slower over the past 130 years.
Needless to say, I then point out that we avoided that fate because we were fortunate enough to have decent economic policy.
But I also ask people to imagine how much richer we could be if we had great economic policy (sort of like Hong Kong before China’s crackdown) rather than decent economic policy.
I now have a new example to share. Here’s a fascinating tweet from Jason Furman, who was Chairman of President Obama’s Council of Economic Advisers.
As you can see, it does not seem like there has been a huge difference in per-capita economic growth between the United States and Argentina. But it turns out that 0.5 percentage points actually is enormous when looking at 100-plus years of data.
If you want even more evidence about why 0.5 percentage points of growth is important, the Economist reported a few years ago that Argentina was the world’s worst-performing economy over the past century.
That’s the high cost of Argentinian statism. Let’s hope President Milei can fix the problem.
P.S. Despite serving under President Obama (and despite sometimes being on the opposite side from me in debates), Furman is a rational Democrat.
P.P.S. Even though poor countries are supposed to grow faster than rich countries, the above chart is another example for my anti-convergence club.
