Before worrying about this data, let's do a simple calculation to understand the importance of GDP per capita. For example, if the US population grows by 3% every year and GDP grows by 2%, then our children's future is indeed bleak. but it is not the truth. We can be sure that the number of births minus the number of deaths will increase the population of the United States by no more than 0.5% per year. The number of immigrants is difficult to predict, but I believe that a reasonable estimate is 1 million per year, which will bring about 0.3% annual population growth.
All in all, we can expect the US population to grow by about 0.8% annually. Under this assumption, the real GDP of the United States will grow by 2%. After deducting the growth rate of inflation, the per capita GDP will grow by 1.2% every year.
This growth rate sounds trivial. But over time, it will work miracles. In 25 years, that is, a generation of time, an annual growth rate of 1.2% will increase the current per capita GDP of 59,000 US dollars to 79,000 US dollars. This $20,000 increase will bring a better life to our children. Even so, everyone may think that such a rate of return is nothing special.
Rely on innovation to increase productivity
I was born in 1930, when the symbol of American wealth was John D. Rockefeller Sr. (John D. Rockefeller Sr.). The middle class today enjoys tourism, entertainment, medical and educational services that Rockefeller and his family cannot enjoy. Even if John D exhausted all his wealth, he would not be able to enjoy the joy and convenience we now take for granted. Two words can explain this miracle: innovation and productivity. On the contrary, if Americans today, as they did in 1776, do the same things in the same way, we will live the same as our ancestors.
In the early days of the United States, just to provide daily food and cotton, about 80% of workers were required to work on farms. Why are only 2% of workers doing this job now? This is thanks to those who invented tractors, planters, gins, combine harvesters, fertilizers, irrigation systems, and a series of other productivity-enhancing tools.
Of course, this has an important premise: in the 241 years since the founding of the United States, the progress I described has destroyed and replaced almost all of our labor force at that time. If this drastic change is foreseen early, the strong opposition of workers will certainly make these innovations hard to escape the fate of failure. Some people may ask, can these unemployed farmers find jobs?
Today we know that the tremendous progress in agricultural productivity is a good thing. It frees up nearly 80% of the country’s workforce and invests them in new industries that change our way of life. You can describe these developments as increasing or destroying productivity. No matter which label is used, they all explain why we now have a staggering GDP per capita of $59,000.
This economic miracle is still in its early stages. In the future, Americans will benefit from more and better "things." The challenge we face will be how to let those whose lives are affected by social progress lead a better life. On this issue, many people’s concerns are justified.
Disadvantages of market economy
In 1930, some experts predicted that in my lifetime, per capita GDP would increase 6 times. My parents did not hesitate to think this was impossible. Decades later, "Forbes 400" told us a completely different picture. Since the first statistics in 1982, the wealth of the top 400 people has increased 29-fold, from 93 billion US dollars to 2.7 trillion US dollars, while millions of hardworking citizens are still stuck on the economic bicycle. During this period, the tsunami of wealth did not benefit the lower class, but moved upward.
In 1776, the United States had a market economy, the rule of law, and equal opportunities at the same time, which unleashed human potential. This is a genius system. It took only 241 years to turn the original villages and grasslands into a fortune of 96 trillion US dollars. But at the same time, the market system has left many people hopelessly behind, especially as this market becomes more and more specialized. These side effects can be improved: a wealthy family takes care of all children, not just those with market value.
In the future growth, I have no doubt that the United States can not only bring wealth to many people, but also enable everyone to live a decent life. We cannot just be satisfied with this.
(Translated from Warren Buffett Shares the Secrets to Wealth in America, Time Magazine, January 2018)
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