The Brains Behind US Economic Growth [Graph]

In a previous post, I wrote that the real forces behind adding fuel to the US economic growth engine may be the brains of the American people.  This may enable the US to discover new competitive global niches in which to compete versus continuing to attempt to spur growth in industries in which we no longer have a global competitive advantage.

We’ve seen techniques such as quantitative easing, lowering interest rates, and even lowering taxes be used in order to spur growth–commonly measured by GDP.

Investing in something like education or even domestic projects that require training is rarely discussed as a mechanism for spurring growth.  Should these techniques be used — especially since other techniques haven’t created the GDP growth we wanted?

Let’s see how this theory holds up mathematically.  All data is from The World Bank. Below is a plot of the correlation between Public Education Spending (as a % of GDP) and GDP in order to determine if a relationship may exist between the two.  Granted, this is a back of the envelope initial check so additional tests that include other factors should be performed to determine if a true relationship exists:

Unfortunately, not enough data on Public Education Spending existed to do an accurate correlation.  But using the data available, it would almost appear as if the two were negatively correlated. That’s not good news.

Notice, however, the decline of both plots at the far right.  Although there was a great deal economically going on during that period, I wouldn’t assume the two are negatively correlated until digging deeper.  Especially since the data for public educational spending is sparse.

I’ll revisit this analysis in the future and analyze the effect of education on consumer confidence and spending, both of which economists have described as having an positive correlation with GDP.  Perhaps we’ll discover an unusual place for policymakers to invest in order to get GDP growing again.


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