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Per capita GDP trends over past 70 years

Analysis of how well average inflation-adjusted after-tax income for the bottom 90% has tracked per capital GDP over the past 70 years. Created by Sal Khan.

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Video transcript

- [Instructor] This is a chart from "The New York Times," that shows us how per capita GDP has trended on an inflation adjusted basis since 1947. So you can really think about this as the post World War II era. World War II of course ended in 1945. It's always good to read the fine print to make sure we understand what this is telling us and what it's not telling us. As I mentioned, it is adjusted for inflation. It also says that the incomes given here are post tax and include government benefits. So if someone's getting a government benefit of a certain value per year, that would be included in their income here. And, if someone is say, making $100,000, but paying $35,000 in taxes, then the income is post tax. It'd be the $100,000 minus the $35,000, or $65,000. And there's several interesting things here. This is showing us growth since 1947. So it's not that folks in 1947, that we had a zero per capita GDP, or that there was zero income. It's just obviously in 1947 you haven't had any growth since 1947. And then as you move forward in time, over roughly the next 30 years, you get to about 1980, it looks like you've had about 100% growth. Now whenever I think in terms of percentage growth, 100% growth, 200% growth, I always like to do a little bit of a reality check of how would that compare to where I started? I like to view the 0% growth as 100% of 1947. I'll make another axis here on the right to supplement what's already there. So this would be 100% of 1947. Then, if I grow 100% from that, that's the same thing as doubling. So 200% of 1947. This right over here, if I grow by 200%, that means I am at 300% of 1947. And then if I've grown by 300%, that means I am at 400% of 1947. So one way to think about it is over the course of the 30 years, or 33 years from 1947 to 1980, it looks like inflation adjusted per capita GDP has essentially doubled. It has grown by 100%. And it also looks like in this yellow line where they're telling us the average income for the bottom 90%. So bottom 90%. That's essentially everyone but the top 10%. It looks like it's roughly tracked per capita GDP. In fact it looks like it might have been a little bit ahead of that over some of those years. So if you go from 1947 to 1980, per capita GDP has roughly doubled. And, average incomes for that bottom 90% has roughly doubled. Now something interesting, or at least this graph is highlighting something that might be interesting, over the next 40 year period, from 1980 to roughly today, which is per capita GDP has continued to trend upward at a seemingly similar rate. But, the income, the average income for the bottom 90% does not seem to keep pace with that. In other videos we looked at 1980 to now and we saw this trend. But we didn't have the historical data from 1947 to 1980 to see that you don't always see this. And in order for that to happen, that means that the top 10% must be growing faster. I'm just making up some curve like that. It must be going at a faster rate. And even this might be surprising some of you. You might say, all right, the bottom 90% is not growing as fast as the average across the country, but by this measure it looks like on an inflation adjusted after tax basis, the bottom 90% is at 300% of 1947 now, give or take, and it was at 200% of 1947 in 1980, give or take. Which means that the standard of living since 1980 should have improved by about 50% for this bottom 90% group. And I know for a lot of y'all who have been around since 1980 or who know about 1980, says well maybe that's the case. Most of us definitely have better computing power now, we have nicer large screen flat TVs. We have cheaper manufactured goods. But other things feel harder for a lot of folks than 1980. Things like buying a house. Or healthcare. Or college tuition. And that goes to something that we will probably dig into more in other videos. And that's how inflation is measured. I'm not gonna go into detail. Other parts of Khan Academy we talk about how inflation is measured and the Consumer Price Index. But whenever you look at any statistics, it's always important to think about how are they calculated? What are the underlying assumptions? Because inflation is trying to capture how much can you buy with a certain amount of money? But that calculation is dependent on what you think people are buying. Or how you measure the cost of it. So we'll talk about that in future videos. But the big takeaway here is is that the historic trend is that the bottom 90% has roughly grown with per capita GDP. But it seems like there's something about the last 40 years, whether it's tax policy, monetary policy, demographic changes, technology, globalization, education, and maybe all of the above, that has led to a change in the trend.