Economist's View: Shiller: The Rising Wealth of Nations

Robert Shiller has an optimistic outlook for worldwide GDP growth in coming decades:

The rising wealth of nations, by Robert J. Shiller, Project Syndicate: The new Penn World Table, Version 6.2, comparing standards of living across countries, has just been released. The ... numbers are valuable because they are of exceptional quality and they correct systematically for relative price differences across countries, which sometimes leads to surprising results.

Among the 82 countries for which 2004 data are now available, there is good news: Real per capita gross domestic product rose by an average of 18.9 percent between 2000 and 2004, or 4.4 percent per year. ... At that rate, real per capita GDP will double every 16 years. ...

One surprise is that there was relatively little change in the ranking of countries by real per capita GDP after 2000. Despite all the talk about the Chinese economic miracle, China's ranking rose only slightly, from 61st (out of 82 countries in 2000) to 60th in 2004 -- even though per capita real GDP grew by ... 9.6 percent a year, the highest of the major countries.

The reason China did not rise higher is that other countries were growing too, and because the gaps between countries were enormous. ... The average real per capita GDP of the top 25 percent of countries is 15 times that of the bottom 25 percent. ...

China isn't the only success story. Other big winners in terms of real per capita GDP between 2000 and 2004 were Lithuania (up 48 percent), Romania (up 41 percent), Estonia (up 40 percent), Chile (up 33 percent), Hungary (up 32 percent), Greece (up 31 percent), New Zealand (up 28 percent), Australia (up 25 percent), South Korea (up 23 percent), Ireland (up 23 percent), South Africa (up 23 percent), and Nigeria (up 22 percent).

Some of the worst performers among the major countries were Israel (...with real per capita GDP up only 2 percent between 2000 and 2004) and Argentina (...up only 9 percent between 2000 and 2004).

Economic performance in several Latin American countries was relatively weak in this period... But the overall picture was amazingly good. If such growth rates continue, we will see relatively poor countries like India, Indonesia, the Philippines or Nicaragua reach the average levels currently enjoyed by advanced countries in 50 years. But, of course, they will not have caught up with these countries, for those countries will have moved ahead too.

It is hard to imagine now what that world will be like with a doubling or quadrupling of just about every country's GDP. What will all these countries do with all that money? ...

Real per capita GDP in the United States is now three times higher than it was in 1958. What have people been spending all that extra money on? Is it all dictated by advertisers and salesmen who are inventing needs?

According to my calculations comparing 1958 and 2005 data from the U.S. Department of Commerce, Americans spent 27 percent of the huge increase in income between 1958 and 2005 on medical care, 23 percent on their homes, 12 percent on transportation, 10 percent on recreation, and 9 percent on personal business activities.

The kinds of things that advertisers and salesmen typically promote were relatively unimportant. Food got only 8 percent of the extra money, clothing only 3 percent, and personal care 1 percent.

Unfortunately, idealistic activities also received little of the extra money: 3 percent for welfare and religious activities, and a similar share for education. Thus most of the extra money was spent on health, a nice home, travel and relaxation, and doing a little business.

Maybe that is the way it will be around the world. As long as we can keep worldwide growth going at its current rate, billions of people can look forward to the same kind of improvement. And that should be truly inspirational.