Let's Party Like It's 2018!

Halloween is coming, and we just heard great economic news. We heard that the economy grew some huge number. Let's party!

However, as you may already have been told, it is much too early to celebrate. We must be solemn.

For example, here are the first three results Google thinks I should see:

Well, at the risk of being censored for being too optimistic (and this is a very real risk, as I have in fact been censored for this very reason), I think the numbers are great! Instead of being cautioned and anxiety-ridden, we should be excited!!

In the US, our 2020Q3 GDP exceeded our GDP of 2018Q1. And, I remember 2018; it was great! We weren't in some sort of apocalypse.

Yes, I know that we are not back to the high point, but we are much higher than I believed we would be when the pandemic broke out. I thought we were entering the great depression... but instead.... we entered 2018!

That's all I wanted to say. The rest of the article explains how to calculate these numbers for yourself and explores some alternate numbers.

Happy Halloween.

Update #1, since writing this article some of the European results have been posted.

Update #2, at the request of readers, I added at the end of this article a discussion about government deficit spending.

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Source of Data

Originally, all of my data came from the OECD. This is the same source I used for an article comparing economic and GDP data and COVID-19, but it now has some Q3 data. For convenience of data analysis, I downloaded the data by pressing the export button (seen in the image below.)

I pulled the data into Excel and put it into a Pivot Table. It is a big file with a lot of data. I filtered it to only show the same metrics that the OECD chose to highlight. This data is the gross domestic product, using US dollars (all countries are stated as US dollars), fixed purchasing power parity, OECD reference year (to remove effects of inflation), and seasonally adjusted.

By selecting countries, my pivot now shows the GDP of the US and the five largest Western European economies:

So, I created a new table dividing each country's GDP per quarter by its 2018-Q1 GDP to see how well each country has done compared to 2018-Q1.

Update

In the first draft of this article, only USA results were available for Q3. After writing the article, this website posted some of the European country results, as seen in the table below. (The OECD still has not updated their website.)

I took the values in the column for Q3 and multiplied them against the Q2 results in my table. I multiplied them doing this adjustment: 1+value/100. So, Germany's adjustment was 1+8.2/100 = 1.082

This gives a preliminary table of the results (excluding the UK). We can only wait for the OECD to update their website to get all data.

While the above chart reflects the most common way to look at GDP, I personally think it is more interesting to evaluate GDP per capita.

So, using the data already found in the download from OECD, I changed my pivot to show people per country (the values are seasonally adjusted per the OECD). Note the OECD at the moment only has information for the USA through Q3.

Then I divided gross GDP by population to get GDP per capita:

Note: people often think there is a mistake in the data because the US GDP per capita is so much higher than that of Europe. There is no mistake. This website has a nice chart which I post below showing the comparison over time.

Now, you may be wondering where I am going with all of this: I want to compare if the "average person" is better off now than he/she was in the past.

You can do this by dividing the GDP per capita from 2018Q1 by each subsequent quarter's GDP per capita.

The US per capita GDP in 2020Q3 is still slightly lower than in 2018Q1, so we too may need to wait until next quarter to party like it is 2018.

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Shameless Plug 1

If you liked this article, check out these: Covid-19: Red vs. Blue vs. Europe, the Mathematics of the Flu vs. COVID-19, How to Calculate the Mortality of Joe Biden, Record Shattering Fire Season?, You Can Calculate COVID-19 Survival Rate.

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Shameless Plug 2

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Government Spending

Some readers have pointed out that government spending has a lot to do with our situation. They are correct. I researched this for you and provide the following data / analysis.

I found the best source of data to be produced by the bureau of economic analysis, here.

If you stare at the table long enough you realize, a) it is on an annualized basis, and b) there is only one data element missing to complete a 2020Q3 analysis. The chart below shows the only data missing. There are other elements missing, but they are individual items and the total summaries are still produced.

We need the taxes on corporate income to produce the total current tax receipts and hence the current receipts.

If we are willing to assume that the taxes on corporate income will produce some number, such as $240 billion annualized, then we can complete the analysis. By adding $240 billion, we produce a total current receipt of $5,875 billion annualized. This compares to $5,547.4 in 2018Q1 and $5,517.3 in 2020Q2 which are already produced in the table on the web

If we take the receipts and subtract from them the expenses we obtain the "net government saving." If we assume $240 billion for corporate income taxes, we obtain negative $3,719 billion in "savings" for 2020Q3. (You can see that if we assume $220 billion or $260 billion in corporate taxes it is not going to affect the analysis significantly.) The chart below shows the table from the website. The arrow on the bottom is where we are estimating -$3,719 billion.

From here, we can take the annualized "net government savings" and divide it by the annualized GDP to produce a percentage of the GDP that is from deficit spending. However, we cannot use the GDP data from the other parts of this article because they are inflation-adjusted. Instead, we need actual GDP. To obtain this, I went to the bureau of economic analysis. I used table 3 found here. The image below shows how you can obtain the data.

Using the GDP from the above table discussed above as the denominator, we can produce the government spending deficit as a percentage of GDP per quarter. Note, this data only went back 6 quarters.

While I was not able to find this data quarterly for 2018 and prior, I was able to find many sources of it on an annual basis. This chart below shows the historical and projected values on an annual basis.

The implications of the data are that, in 2018, our government budget deficit was about 5% of GDP. In the last quarter we were about 18%. So, for example, at the beginning of the article where I show that the latest quarter's GDP is 100% of the first quarter of 2018, that number would probably be something like 100% - 18% + 5% = 87% if there was no government spending. However, government spending and its interplay with the economy is beyond the scope of this article, and really the expertise of the author, so I will make no further comments; I allow the reader to use this data to think about this how he or she chooses. I also have no ambition to pull the deficit spending data for Europe right now.