CFE Analysis

A Lost Four Years, But Better Than Hoover

The United States may be on the verge of an unfortunate accomplishment rarely reached in the last century: a presidential four-year term in which real per capita GDP was lower when the term ended than when it began.

The International Monetary Fund estimated this week that the real gross domestic product (GDP) of the United States will fall 8% year over year in 2020, as a result of the worldwide recession brought on by COVID-19.

If that estimate proves correct – and there is great uncertainty about that — it would be the worst year for GDP in the United States since 1946, when the United States slashed production of armaments following World War II. These figures are based on total real GDP in one year compared to total real GDP in the prior year.

One way to measure economic growth is to look at real per capita GDP – the size of the economy per person living in it, after adjusting for inflation. Official U.S. Government calculations of that are available from 1929 through 2019, and the Maddison Project, an international collaboration of economists based in the Netherlands, has updated estimates made by the late Angus Maddison, a professor at the University of Groningen. That project has estimated per capita GDP in the United States and many other countries going back centuries.1 The accompanying charts use those estimates back to Thomas Jefferson’s first term that started in 1801.

The charts measure real per capita GDP growth from the year before a presidential term began through the final year of the term. It assumes the IMF forecast of total GDP is accurate, and that U.S. population will grow as fast – half a percent a year – in 2020 as it has in the past couple of years.

Chart showing annualized growth, real GDP per capita, for presidents from Jefferson to Taft

During the 20th century, there were only two presidential terms when per capita real GDP declined. The first was Herbert Hoover’s administration, when the country fell into the Great Depression. The second one was the first presidential term after the end of World War 2, when the country demobilized, with war factories closing.

That term had followed the 1941-1944 term, when World War II brought massive mobilization and saw per capital GDP rise the most for any four year term in American history. That may be a reminder that rising GDP is not always something to cheer about.

In the 19th century, by contrast, there were seven presidential terms that saw per capita income decline – the worst being Grover Cleveland’s second term from 1893-1896, when the Panic of 1893 put the economy into a decline that became known as the Great Depression, until a new downturn took that title away.

In this century, the financial crisis and Great Recession that followed it almost caused a decline in real per capita income in Barack Obama’s first term, but decent growth late in the term averted that.

Now, if the IMF’s crystal ball is clear, per capita G.D.P. seems likely to fall 8.5% in 2020, more than enough to wipe out gains during the first three years of Trump’s term. The chart estimates real per capita GDP in 2020 will be 2.9 percent below the 2016 level, producing an annualized fall of 0.7% a year while Trump was in office.

In 1948, at the end of the last term with a fall in per capita GDP, Harry Truman was widely viewed as sure to lose his campaign for reelection. But he won, and became the patron saint of political underdogs. Don’t be surprised if he is soon invoked by the current president.

1. Maddison Project Database, version 2018. Bolt, Jutta, Robert Inklaar, Herman de Jong and Jan Luiten van Zanden (2018), “Rebasing ‘Maddison’: new income comparisons and the shape of long-run economic development”, Maddison Project Working paper 10