Has a politician or pundit freaking out about GDP growth ever worried you enough to change your retirement plans?
Probably happened a little too much in the last election cycle.
The thing is, politicians always want to be the ones who can claim that economic growth happened while they were in office. It’s a sign of prosperity and leadership to them.
Or on the flip side, they use economic contraction as an indictment of the party in power when it happens. A sign of weak leadership and flawed policy.
And it makes sense on the surface. But let’s dive a little deeper.
Unchecked growth in the GDP
Imagine with me for a minute. What if you grew every day your entire life? Even if it was just, say, a measly hundredth of an inch?
So you’re born at the average 19.5 inches. All’s good.
By age 1, you’re about 2 feet tall. Sounds reasonable. Short legs are common at that age.
At 11, you’re 5 feet tall. Believable in this little simulation.
Except some people have already stopped growing by that height in real life. And you’re young. Why #GDPgrowth isn't always good for your retirement Click To Tweet
At 15, you’re 6-foot-2 and still growing.
Everything’s great. You’re the star wide receiver, the girls’ volleyball great, the prized basketball center.
At 18, you’re a freak of nature at more than 7 feet tall.
You suddenly don’t belong anywhere you go—physically or otherwise. You can’t find clothes that fit. You sit in fetal position when you have to ride a bus. Airplanes are pretty much out of the question. Subways? No way.
And you’re always hungry!
Well, over the roughly 29,000 days you’re alive, it gets pretty bad.
By the time you die you’re 25 feet tall. You’re an outcast. You don’t fit in any space designed for mere humans. You can never quell your appetite, your skeleton can’t support your own weight, you long ago gave up trying to find any clothes that fit and you’re a prisoner of your own massiveness.
This example may seem extreme, but that’s what an unchecked economy does.
At some point, a growing economy gets to be too much to feed. That’s why the economy always scales back after growth and rockets forward after recession.
Seasonal growth in the GDP
In nature, growth happens quickly in the spring and summer.
Then, all heck breaks loose.
- Leaves are falling off the trees.
- Plants are dying.
- Everything stops growing and enters survival mode.
- Winter comes and nature just tries to hold on.
This happens every year in nature. Every. Year.
But when it happens in the economy, people start freaking out. Pointing blaming fingers with wanton passion.
Scared people hide savings in mattresses. People wait out the economic winter. Some who are about to retire change their plans. Retirees exit the stock market.
You’ve seen it.
It’s weird, really.
When the Gross Domestic Product growth slowed to 1.2 percent earlier this year from the 3.5 percent of last year, people questioned the economy.
Check this chart out: it looks dramatic.
Is everything going to be OK? Of course!
It’s just fall setting in.
But politicians and even some economists want to see growth at a constant high rate.
Let’s look at the long-term trends.
Not a table-top to be seen anywhere since 1917.
Constant, consistent GDP growth is a myth.
A myth no one should buy into, even if politicians want you to for the sake of their party.
Author Bo Bennett once said, “As sure as the spring will follow the winter, prosperity and economic growth will follow recession.”
Natural selection is the GDP way
Cyclical growth is healthy, people!
It’s basically a natural selection process. When things are good, more companies come into the world.
Some make it.
And that’s OK from an economic standpoint. Consider it natural selection. The thing that keeps the economy from growing into that behemoth that can no longer support itself.
Besides the fact that GDP growth never stays constant, here’s something else to think about if you hear someone spouting about how we need more GDP growth:
The stock market doesn’t mirror GDP growth. Like, at all.
Compare the historic GDP chart above to this historic Dow Jones Industrial chart below.
See any differences? You bet!
So next time someone starts to worry you about your retirement with talk of negative GDP growth, don’t worry about it.
And if they give you any problems, come talk to me.
Question of the week:
How often have you felt GDP changes on a personal level? I’d love to hear your stories in the comments below!