Analysts in the U.S. have been worrying about sluggish economic growth for the past few years, with Donald Trump saying that gross domestic production (GDP) has grown just 1%.
While U.S. GDP has hovered around or below 2% in past quarters, there’s no need to fret, said Warren Buffett. In an interview with Carlyle’s David M. Rubenstein on Bloomberg late Tuesday, Buffett said there’s always compound interest—the same financial force that helped him make billions.
“If you already have an already prosperous economy, and we have one of the most prosperous in the world, and you keep compounding it over time, people will be living far better 20 years from now than they are now,” Buffett said.
He went on to say that 2% GDP growth paired with 1% population growth would come out to be a 1.2% increase in GDP per capita growth. That’s not a lot at first, but after 25 years, it would lead to a gain of 34% per capita growth, producing an $18,000 to $19,000 increase in GDP per capita. That’s a gain of roughly $76,000 for a family of four during that same time period.
Buffett cited current statistics in his analysis: U.S. population grew at 0.8% in 2015, according to the World Bank, while GDP grew $55,863.80 per capita in 2015.
It’s not the first time Buffett has suggested this worry over low economic growth is overblown. He laid out his argument in Berkshire Hathaway’s
annual letter back in February, where he serves as CEO.
“Today’s politicians need not shed tears for tomorrow’s children,” he wrote. “That [2%] rate, we will see, delivers astounding gains.”
Buffett did acknowledge that there would be some years before the U.S. could rise beyond its 2% growth.
Buffett’s remarks were perfectly timed to the country’s third quarter report, which showed a 2.9% growth rather than the anticipated 2.6%.