Seventh Generation GDP

Reservations about the use of Gross Domestic Product have been expressed on this page previously (see an early post from Jason). Examining historical data from EH.net would seem to confirm our suspicions, as going strictly on real GDP per capita you would have to believe that the average US citizen was wealthier in 1944 than 1958.

However, data from EH.net can also be used to demonstrate an interesting point about "taking care of future generations." A new idea about our environmental impact is currently en vogue, known as seven generation sustainability. I'm not sure exactly how "en vogue" the principle is, but there is a product line cashing in on the notion which got some air time on a Daily Show Earth Day report (towards the end). The idea supposedly comes from the Great Law of the Iroquois, which stated that "in every deliberation we must consider the impact on the seventh generation."

Let's leave aside the pretense of knowledge issues and assume for a minute that we can consider the impact on the seventh generation into the future. Does this translate into a call for environmentalism? The maxim states "every deliberation," not just environmental ones. Wikipedia gives the length of a generation at around 22 years, which seems about right. This means that seven generations is 154 years. Data from EH.net only go to 2005, so let's examine the last 154 years of data available, from 1851 to 2005.

During the period from 1851 to 2005, GDP per capita increased in real terms (2000 dollars) from $1,972 to $37,232. That's an average annual growth rate of around 1.9265% (you'll see why all those decimal places are important in a second). If average annual growth had been one full percentage point lower over that period, GDP per capita in the US in 2005 would be only $8,160 (again, in 2000 dollars) which is approximately equal to the income of Macedonia today, or just slightly more than China. If the growth rate had been on average one-half of one percentage point lower, we'd be about where Hungary is today.

What policies could lead to lower growth rates on the order of one or one-half of a percentage point? I'm sure most economists could provide a laundry list of regulations and taxes, but I'll give one: environmental regulations. Assuming these growth rates hold over the next seven generations, the average American in 2159 would enjoy a real income of $703,285. If we're doing something to cut that growth rate by either one or one-half percentage points, the 2159 incomes would be either $154,070 or $329,790. If on the other hand some repeal of bad policies lead to an increase of one percentage point in average annual growth, the 2159 average American income would be $3,163,049. Talk about thinking for future generations!