It seems like no matter where you turn, there is someone spouting doomsday facts about the U.S. GDP (gross domestic production). President-elect Donald Trump talked repeatedly about how the GDP grew by only 1%, and in the wake of the recession of the early 2000s, the state of the economy is still at the forefront of most people’s minds.
But, according to the Oracle of Omaha, we’re all worrying just a little bit too much. In fact, in an interview with David Rubenstein on Bloomberg, Warren Buffett said that it doesn’t work how people think.
“If you already have an already prosperous economy, and we have one of the most prosperous in the world, and you keep compounding it over time, people will be living far better 20 years from now than they are now,” Buffett said. He went on to point out that many people forget about the compound interest that will be accrued over the years; one of the things that helped him become the 3rd wealthiest person in the country in 2016.
Here’s a chart from the U.S. Bureau of Economic Analysis showing the GDP change during the last few years.
As you can see, the chart is a little all over the place in past years, but the GDP has seen a steady increase in the last few years. In fact, Wall Street Journal reported that the last quarter’s increase marked the strongest growth quarter in two years. The third quarter of 2016 saw an increase of 2.9% which was a welcome increase from the 2.6% projected increase.
Another thing the Oracle of Omaha pointed out is that when the 2% average increase is compared to the 1% population increase, the per capita growth is 1.2%. And, while that number isn’t anything super impressive, over the span of 25 years, it could lead to around 34% per capita growth and result in an $18,000 – $19,000 GDP increase per capita. According to Fortune, that would come out to a gain of roughly $76,000 for a family of four during that time period.
It’s worth notice that even Buffett had to admit that a growth of more than 2% would be challenging and likely wouldn’t happen for a few years, but even so, the dire predictions from politicians and others are a little premature.
“Today’s politicians need not shed tears for tomorrow’s children,” Buffett wrote in his annual letter, which was released in February 2016. “That [2%] rate, we will see, delivers astounding gains.”