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Perspective: Nudging Growth Higher Worth the Effort

Today’s economic expansion multiplies wealth in every year down the line

By Mark Green

Discussion of gross domestic product is conducted in serious tones, implying great importance. But these discussions always seem to miss explaining GDP’s real substance and importance.

The media does a poor and lazy job of explaining. Stern talking heads just give us a number without any real-life perspective: GDP grew only 1.5%, or a healthy 3.5%, or a robust 5%, or heaven forbid it goes negative two straight quarters and the economy is in recession.

Whether up or down, the GDP number is significant, but why? The definition is dry: gross domestic product is the total value of all goods and services produced by all sectors of the economy for a given time. Growing is good (except when it creates inflation?) and shrinking is bad, right? But again, why should we care?

Because GDP is wealth, spread broadly, and wealth makes all our lives better. We always want and need more.

The key word in that definition is “value.” When GDP grows, there is more wealth, more dollars, more stuff, more assets to go around for everyone. And more importantly, as it grows over time, it means much MUCH more wealth—to do potentially everything.

The rich will get richer (as always), but so will the middle class and the poor. The government (which is us) will have more money for important public services like education, law enforcement, health and safety; to build and improve infrastructure; to meet financial obligations such as pension payments. Nonprofits and charity will get more with which to do good works.

We especially should keep in mind that GDP growth today gets multiplied every year moving forward, which is why it’s important always to push for every little bit of growth we can. Economic growth sounds like an abstraction, but it is real life dollars—dollars clients and customers can spend, that banks and other financial institutions can loan out, that turn over and over in the community, the state, the nation.

GDP numbers—our collective wealth—can be likened to compound interest’s impact on your retirement account, accelerating its growth every year. Every percentage point every quarter takes on heightened importance if you consider it to be “growing growth”—further building and multiplying all the past dollars, and all the dollars in the future.

Kentucky’s GDP for 2019 was $215.4 billion, according to the U.S. Bureau for Economic Analysis. Over the 10 years from 2009 when it was $156.0 billion, Kentucky GDP grew an average of 3.28%. Thus, Kentuckians had an extra $59.4 billion to work with in 2019 than they did in 2009.

However, had our state grown 4% annually for the decade it would have hit $230.9 billion in 2019. That one-year, $15.5 billion improvement over the wealth generated by 3.28% growth is significant, but that only counts 2019. The true impact of 4% growth for Kentucky for a decade would be $59 billion more wealth when its effect on each successive year is added together.

What could Kentucky have done with $59 billion? Think about that the next time you hear the latest GDP growth number.

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