Jun 06 2011

Multi-Century GDP Trends Point to a Near-Term 1960s-Style Boom

Published by at 4:53 am under Wave Guide 1: Economic Growth

Only last December the Wall Street Journal reported that 55 economists surveyed had estimated the probability of a “double dip” recession in 2011 at only 15%. But recently — with the collapse of housing market plus other scary economic news — a double-dip in the U.S. is considered more likely, and even the D-word is being tossed around again — for example by Peter Yastrow on CNBC.

We’re on the verge of a great, great depression.

So I thought it was time to update and expand my earlier foray into multi-century GDP Land.

The Stewart Energy Long Cycle is about to transform the world, just like it has repeatedly over the last 200+ years.

It’s possible to illuminate 3 key issues: 1) the magnitude of U.S. wealth by 2025, 2) the likelihood of the 2015 boom timeframe, and 3) future U.S. growth versus the great 1960s JFK boom. GDP trends over the last 200+ years are surprisingly positive toward all three issues. All GDP data came from the user-friendly site: MeasuringWorth.com. Of course they do not necessarily support any analysis or opinions expressed here.

How wealthy will the U.S. be in 2025?
In 1989 Hugh Stewart discovered the 56 year energy cycle (total U.S. energy use, shown above) that correlates well with economic booms and busts as well as great explorations (e.g., Lewis and Clark), the largest macro-engineering projects (MEPs: e.g., Panama Canal), and major wars (e.g., W.W. I); these 3 entities cluster exclusively around the rhythmic, twice-per-century energy cycle peaks (the most recent in 1969).

The well-documented Stewart long energy cycle is consistent with the Kondratieff long economic wave as well as Strauss and Howe generational cycles.

To see how well the economy has recovered from each trough to the subsequent peak over the last ~200 years, we simply calculate the ratio of the GDP at each peak — at 1801, 1857, 1913, 1969 — to the GDP at the preceding trough (peak minus 28 yr). All GDPs are real and in 2005 USD.

Fig. 1: The economy has recovered consistently from its low points to its subsequent peaks throughout the last 2 centuries.

Based on the Peak/Trough GDP ratios of Fig.1, we assume that the 2025 ratio will be ~3, and so the projection for U.S. real GDP in 2025 is just under $ 30 T ($ 29.6 T), in 2005 USD.

It’s also helpful to see how well the economy has recovered from each trough to our current position — about 15 years before the energy peak. These “current” to trough GDP ratios are shown here (peak year/peak year – 15 y):

Fig. 2: From the recent trough to 2010, the U.S. economy recovered somewhat slower than in the 19th and 20th centuries.

Since our current ratio (1.34) is somewhat lower than other values, it suggests that we have not recovered as rapidly in recent years from our trough (~1997) possibly because the GDP at this trough (1997) is higher than expected, or the Panic of 2008 was 2-3 years “late” — or some combination the above.

One way to estimate the 2025/2010 GDP ratio is to calculate the GDP ratios for each peak year relative to each peak year minus 15 (our current position), for each energy peak year with macroeconomic data. These GDP(Peak year)/GDP(Peak year minus 15) ratios are:

1969/1954: 1.83
1913/1898: 1.55
1857/1842: 2.19

“Current” GDP numbers above suggest that the ratio for 2010 is ~1.86 which allows another projection for U.S. real GDP(2025) of $ 24.6 T, in 2005 USD. Also, simply extrapolating GDPs from the 1801 energy peak through 1969 gives a similar number — GDP(2025) ~ $ 25.6 T, in 2005 USD.

In summary, 3 projections for U.S. real GDP in 2025 — based on GDP ratios for peak to trough, peak to “now”, and peak to peak — vary by only 20% and range from ~ $ 25 T to 30 T (in 2005 USD).

Will the 2015 Boom Arrive on Time?
Durations of previous great recessions illuminate this question.

Although there was no major post-war financial panic before 1960, there was one about a century ago. The Panic of 1893 led to a 4-year recession just before the Peary/Panama/T. Roosevelt Maslow Window ignited into one of the most ebullient periods in U.S. history.

Plus, the extraordinary mid-19th century Dr. Livingstone/Suez/J. Polk Maslow Window — known for “Manifest Destiny” — was preceded by the Panic of 1837, which lasted 5 years. (Although there is anecdotal evidence for a panic/great recession just prior to Lewis and Clark (the 1801 Maslow Window), there is little economic data available, so it’s not considered here.)

If the current great recession — which followed the Panic of 2008 — is similar to previous panic/great recession pairs that led to transformative Maslow Windows over the last 2 centuries, the current recession should end by (2008 + 5) 2013. This tentative conclusion is supported by the following:
1) both great recessions (of the 1830s and 1890s) were “double dips,” which may also be in our future,
2) Harvard economist Robert Barro’s study of 59 international, non-war depressions since 1870 shows they average only 4 years in duration.

Will the Boom of 2015 exceed the 1960s?
Given the projected GDP for 2025 and the timing of the next great boom, the answer is: yes. But let’s crunch a few more numbers for perspective.

The Panic of 1837 was followed by a great recession and a stunning Maslow Window that culminated near the energy peak in 1857. From 1844 to 1856 — 12 years — they basked in mean annual growth of 5.8 %.

The Panic of 1893 triggered a great recession and a transformative Maslow Window that was terminated by WW I. Between 1897 and 1906 — 9 years — they enjoyed mean annual growth of 5.0 %.

Although it did not include a major financial panic/great recession pair, the civilization-altering 1960s Apollo Maslow Window led to the first humans on the Moon. From 1961 to 1969 — 8 years — they expanded at 4.9 % per year.

Given that projections for GDP in 2025 are at least 6 times that of 1969, and that the next major boom is likely to arrive by 2015, it’s clear that annual growth rates are likely to exceed those of the 1960s. For example, if we start rapid growth in 2012 (unlikely) we’ll require the 1960s rate; but if the boom is delayed until 2013 or 2015 (more likely), we’ll need super-1960s growth rates of 5.2% and 6.3%, respectively.

Widespread ebullience triggered by the 2015 Boom is expected to drive a new international Space Age that will dwarf Apollo.

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