We’ve just presented the historical estimates of real GDP per capita developed by Angus Maddison at the Groningen Growth and Development Centre. Figure 1 summarizes all graphs of our previous post and illustrates the inherent mastery of the GDP evolution after WWII. The rate of real economic growth jumped by a factor of 10 between 1940 and 1950. If to extrapolate the linear trend observed after 1950 into the past, the level of real GDP per capita intercepts the time line between 1920 and 1940. Does that mean that there was no or negative real economic growth in the 19th century or the rate of economic growth after 1950 has been dramatically biased? If to extrapolate the growth rates observed before 1940, the current level of real GDP per capita in developed counties would have been below $15,000 or even $10,000. Does that mean that the rate of price inflation has been highly underestimated since 1940?
This is a major paradox of the historical GDP time series. Can anybody explain it?