Quote:
Original post by LessBread
GDP measures the size of an economy. If we're asking about economic growth, we're asking about changes in the size of the economy, changes in GDP.
Whatever the government does has little effect on population, though (barring totalitarian immigration, child-restriction etc. laws), and I would assume a government does not normally explicitly seek to grow the country's economy indirectly via population growth. We're talking here about the government's power to affect the economy by taxation and spending, and the hypothesis that higher taxes grow the economy,
ceteris paribus. Right?
Anyway, I have tracked down the following data:
Real GDP Per Capita (2000 dollars)1790 $9171791 $9431792 $9831793 $1,0301794 $1,1291795 $1,1631796 $1,1631797 $1,1501798 $1,1621799 $1,2061800 $1,2371801 $1,2581802 $1,2581803 $1,2411804 $1,2501805 $1,2761806 $1,2941807 $1,2551808 $1,2191809 $1,2721810 $1,3031811 $1,3231812 $1,3371813 $1,3751814 $1,3931815 $1,3671816 $1,3301817 $1,3221818 $1,3301819 $1,3151820 $1,3271821 $1,3581822 $1,3701823 $1,3791824 $1,4191825 $1,4401826 $1,4471827 $1,4481828 $1,4241829 $1,4351830 $1,5211831 $1,6001832 $1,6591833 $1,6601834 $1,6391835 $1,6781836 $1,6811837 $1,6481838 $1,6701839 $1,6681840 $1,6281841 $1,6181842 $1,6221843 $1,6551844 $1,7021845 $1,7591846 $1,8461847 $1,9081848 $1,9071849 $1,8681850 $1,8881851 $1,9691852 $2,1171853 $2,2101854 $2,2061855 $2,2251856 $2,2521857 $2,2021858 $2,2321859 $2,3391860 $2,3081861 $2,2981862 $2,5301863 $2,6661864 $2,6361865 $2,6501866 $2,4671867 $2,4471868 $2,4811869 $2,4841870 $2,4921871 $2,5401872 $2,6841873 $2,8341874 $2,8081875 $2,7371876 $2,7911877 $2,8721878 $2,9081879 $3,1841880 $3,3801881 $3,7141882 $3,8051883 $3,8001884 $3,6441885 $3,5731886 $3,7891887 $3,9891888 $4,1311889 $4,1621890 $4,4821891 $4,4381892 $4,5591893 $4,1951894 $3,9131895 $4,2881896 $4,1511897 $4,2551898 $4,6461899 $4,8841900 $4,9211901 $5,0831902 $5,2381903 $5,2921904 $5,0101905 $5,4651906 $5,5801907 $5,6211908 $4,9171909 $5,1691910 $5,1161911 $5,2001912 $5,3591913 $5,4621914 $4,9481915 $5,0111916 $5,6261917 $5,4101918 $5,8341919 $5,8521920 $5,7211921 $5,4831922 $5,7081923 $6,3501924 $6,4221925 $6,4751926 $6,8061927 $6,7771928 $6,7711929 $7,0991930 $6,4181931 $5,9601932 $5,1521933 $5,0561934 $5,5671935 $6,0211936 $6,7611937 $7,0651938 $6,7691939 $7,2561940 $7,8271941 $9,0791942 $10,6441943 $12,2201944 $13,0531945 $12,7661946 $11,2411947 $10,9251948 $11,2061949 $10,9571950 $11,7171951 $12,4121952 $12,6681953 $13,0321954 $12,7191955 $13,3891956 $13,4101957 $13,4351958 $13,0881959 $13,7821960 $13,8401961 $13,9321962 $14,5521963 $14,9711964 $15,6241965 $16,4201966 $17,2901967 $17,5331968 $18,1961969 $18,5731970 $18,3911971 $18,7711972 $19,5551973 $20,4841974 $20,1951975 $19,9611976 $20,8221977 $21,5651978 $22,5261979 $22,9821980 $22,6661981 $23,0071982 $22,3461983 $23,1461984 $24,5931985 $25,3821986 $26,0241987 $26,6641988 $27,5141989 $28,2211990 $28,4291991 $28,0071992 $28,5561993 $28,9401994 $29,7411995 $30,1281996 $30,8811997 $31,8861998 $32,8331999 $33,9042000 $34,7612001 $34,6682002 $34,8852003 $35,4322004 $36,3932005 $37,1222006 $37,7982007 $38,1922008 $38,326
Which produces the following graph, courtesy of another utility on the site:
Note that on a logarithmic plot, the slope of the line indicates percentage rate of growth.
The slope seems to increase slightly around 1840, and again around 1960. There is a large dip indicating the Great Depression, followed by the highest slope (by far) from 1933-1944 (and it is fairly constant during this period, which is impressive). Of course, much of this gain could be attributed to the WWII effort (interestingly, WWI seems to be a drop in the bucket). Immediately following the war there is actually a significant economic downturn for a couple of years.
But overall the trends seem to be quite stable. If we take the conservatives' side of view, we might stretch the truth to suggest that the 1964 tax cut is responsible for the third-phase increase in long-term growth. But further tax cuts in the early 1980s don't seem to have helped any further (except perhaps to kick the economy out of a temporary standstill), and raising the taxes again in the early 1990s doesn't seem to have had a significant effect either. And of course back in 1840, there was no income tax at all.
In short, I'm not convinced that the top marginal tax rate has any statistically significant effect on growth at all, except that dramatically lowering the rate after bad times seems to help a little, and dramatically raising it after bad times seems to help a lot. :) (A finer analysis suggests that changing the rate at all in good times hurts a little, but you have to lower the rates some time if you're going to keep raising them; there's an upper limit of 100% after all.)
EDIT: My guess is that the "fundamental shift" around 1840 - or perhaps a bit later than that? - is due to the
Second Industrial Revolution and related goings-on, and around 1960 is due to the maturity of plastics and the related technologies (modern chemical industry). Oddly, computers and transistor technology don't seem to have been relevant (consider that, on the time scale of other industries, we're constantly shattering old limits, but the overall slope isn't budging).
EDIT 2: Since WWII the growth seems to be quite a bit more
stable overall as well. I suspect that this can reasonably be attributed to governmental economic policy, but to other aspects of it. I think, basically, that we have a better idea of how to control inflation, interest rates, etc. so as to achieve homeostasis.
