I received an interesting question from reader Michael yesterday. Michael asked “Did the Real Economy, Not Counting Government, Expand in Last 20 Years?“

Reader Michael did not think so. Take a moment before reading further to think about how I might answer and how John Williams at Shadowstats might answer.

My Response

If the average standard of living has gone up, then we have had growth.

Better cars, more cell phones, bigger houses, better stuff in general, says we have had growth. In spite of inane inflationary policies of the Fed and corruption in politics everywhere, rising productivity over time was the enabler of growth.

However, some of that growth has been at the expense of debt (and future expansion). We have borrowed growth from the future. Those expecting a return to high growth are mistaken.

Wading Through Molasses

I asked Pater Tenebrarum at the Acting Man blog if he agreed with my response. He chimed in as follows:

Yes, I would agree with that, absolutely.  However, monetary inflation has so distorted prices and made the growth look far bigger than it really was. Essentially the problem is that the market economy must constantly battle against the destructive policies of governments and central banks. It is like wading through molasses.

If you look at the actual improvements in the standards of living in more detail, most of it has to do with the computer industry in the widest sense. Even improvements in health care can be put down to increased computerization. Hi tech remains the one area that develops so quickly, the political class is too slow to regulate it to death, and the central banks cannot keep it from providing better things at lower prices, because its productivity growth is so fast it more than balances out the negative effects of money printing and credit expansion.

In virtually every other aspect, there are at most a few improvements due to the expansion in international trade, but little else.