Tag Archives: gdp growth rate

Why Educational Investment is Non-Negotiable

When addressing current economic issues one cannot ignore human capital, specifically investment in education. Educational outcomes strongly affect the economic growth of a country. George P. Shultz and Eric A. Hanushek, contributors for The Wall Street Journal, compared the GDP-per-capita growth rates between the years 1960 and 2000 with achievement results as determined by an international math assessment test. The majority of countries followed a straight line that revealed that as the scores on the assessment test increased so did economic growth. Although the U.S. remained above the average, this position will not hold strong for long in the future. Students of today, the labor force of the future, are no longer competitive in comparison to other developed countries. The U.S. was ranked 31st in math according to the OECD’s Programme for International Student Assessment, an alarming statistic.

The importance of education on the economy cannot be understated. Better education leads to a faster growing economy. Over the next 80 years improvements in GDP could ultimately exceed $70 trillion, which plays out to be an average boost of 20% for every U.S. worker each year over the course of his or her career. In addition, education directly correlates to higher wages. The median weekly earnings in 2013 were $472 for someone with less than a high school diploma compared to $1,108 for individuals with a bachelor’s degree. Educational disparities lead to economic disparities that without new reform will maintain and foster the inequality problems that continue to hurt the economy for decades to come.

Noah Berger and Peter Fisher, researchers from the Economic Policy Institute, investigated how the state government can boost the economic well-being of their people. Berger and Fisher revealed that high-wage states are the same states with well-educated workforces, which reveals a strong correlation between educational attainment of a state’s workforce and median wages. Therefore, investing in state-wide education is necessary to build a strong foundation for economic prosperity. In addition to building a strong base, investing in education upfront will show a greater return in the long run in terms of state budgets. Since individuals with higher levels of educational attainment will ultimately have higher incomes, these individuals will therefore contribute more to the state’s taxes over the course of their lifetime.

The students of today are the laborers of the future. The need to invest in education is non-negotiable when considering the investment that is being made. Without an educated labor force our economy will suffer, but with an increased investment in education the possibilities look promising. Just imagine if our GDP could exceed $70 trillion and what that amount of money could do to help pay off the U.S. debt.

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What is the gross domestic product (GDP)? The gross domestic product is one of the crucial indicators that economists use to examine the health of a country’s economy. The gross domestic product is the total dollar value of all goods and services that are produced by individuals, firms, foreigners and the governing bodies over a specific time. It is not easy to measure GDP but there are two simple ways to calculate it. The first method is adding up what everyone in a country earned in a year. The second method is adding total consumption, government spending, investments and net exports. The following formula is a general way to find out the GDP:

Gross domestic product= Consumption + investment +government spending + (exports-imports) or GDP= C+I+G+(X-M)

C=spending

I= Investment by businesses

G=Government spending

(X-M)= Net exports, which is the value of exports minus the value of imports.

Why do economists care about the gross domestic product? GDP provides an insight to investors since GDP consists of consumptions, investment expenditure, government spending and net exports that shows overall picture of economy. Moreover, it is also important for policy makers since their economic decision heavily relies on GDP. Lastly, it gross domestic product is used as an indicators that tells us whether the economy is in depression, recession or boom. For these reasons, it is really important for economists to calculate GDP in order to have an overall picture of economy.

What about the GDP growth rate of the United States? GDP growth rate in the United States averaged 3.27 percent from 1940s until 2014. The highest GDP growth rate in the United States was 16.90 % in 1950 and the lowest GDP growth rate was -10 percent in 1958. For 2015, economists forecast that the GDP growth rate would be around 3%, which is higher than the last year’s GDP growth rate, 2.6%. Many economic experts claim that the drop in oil prices would be good for the domestic economy for short-term but they also expect that the U.S. will encounter with deflation as well. They said that falling oil prices would increase the GDP growth rate either by “slightly” or “considerably”. Bernard Baumohl of the Economic Outlook Group said “The plunge in energy pries provides big dividends to consumers and businesses”. Diane Swonk of Mesirow Financial also said, “The fall in oil prices represents a backdoor boost to takehome pay, the likes of which affect the masses, not just a few”, implying that many experts think that the drop in oil price would lift up GDP growth rate. However, some experts claim said cheap oil would not have any impact on the growth rate of GDP.