In 1955, Americans were delighted with the nation’s prosperity. The economy was expanding, consumer goods that had been rationed during World War II were available for everyone to buy, and most Americans believed, rightly, that they were better off than the citizens of any other nation, past or present. Yet by today’s standards, Americans were quite poor in 1955. Figure 12-6 shows the percentage of American homes equipped with a variety of appliances in 1905, 1955, and 2005: in 1955 only 37% of American homes contained washing machines and hardly anyone had air conditioning. And if we turn the clock back another half-century, to 1905, we find that life for many Americans was startlingly primitive by today’s standards.

Why are the vast majority of Americans today able to afford conveniences that many Americans lacked in 1955? The answer is long-run economic growth, the sustained rise in the quantity of goods and services the economy produces. Figure 12-7 shows the growth between 1900 and 2013 in real GDP per capita, a measure of total output per person in the economy. The severe recession of 1929–1933 stands out, but business cycles between World War II and 2007 are almost invisible, dwarfed by the strong upward trend.

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Part of the long-run increase in output is accounted for by the fact that we have a growing population and workforce. But the economy’s overall production has increased by much more than the population. On average, in 2013 the U.S. economy produced about $53,000 worth of goods and services per person, about twice as much as in 1972, about three times as much as in 1952, and about eight times as much as in 1900.

Long-run economic growth is fundamental to many of the most pressing economic questions today. Responses to key policy questions, like the country’s ability to bear the future costs of government programs such as Social Security and Medicare, depend in part on how fast the U.S. economy grows over the next few decades.

More broadly, the public’s sense that the country is making progress depends crucially on success in achieving long-run growth. When growth slows, as it did in the 1970s, it can help feed a national mood of pessimism. In particular, long-run growth per capita—a sustained upward trend in output per person—is the key to higher wages and a rising standard of living. A major concern of macroeconomics—and the theme of Chapter 15—is trying to understand the forces behind long-run growth.

Long-run growth is an even more urgent concern in poorer, less developed countries. In these countries, which would like to achieve a higher standard of living, the question of how to accelerate long-run growth is the central concern of economic policy.

As we’ll see, macroeconomists don’t use the same models to think about long-run growth that they use to think about the business cycle. It’s important to keep both sets of models in mind, because what is good in the long run can be bad in the short run, and vice versa. For example, we’ve already mentioned the paradox of thrift: an attempt by households to increase their savings can cause a recession. But a higher level of savings plays a crucial role in encouraging long-run economic growth.

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