The Real Story of Louisiana’s Economy

The Real Story of Louisiana’s Economy

The American economy is growing and growing strong. More than a decade after the financial collapse and great recession, the American economy continues to grow at an impressive rate. The most recent economic report from the Bureau of Economic Analysis continues to reflect this reality, showing a growth in the American economy of 3.4 percent. Typically, the measure used to judge the growth in the economy is Gross Domestic Product or GDP. GDP attempts to measure all of the economic activity in an area such as a country, state or even city. If the growth of an area’s GDP is more than three percent, it usually means the economy in that area is strong.

Louisiana, meanwhile, fell short of this benchmark with an economic growth of only 1.9 percent according to the latest report. While one economic measurement can certainly be an outlier, the last decade of economic data shows that Louisiana is indeed being left behind in America’s economic recovery.

But a simple look at the data, which is what politicians often cite, would paint a different picture. Indeed it would suggest the Louisiana economy is improving pretty dramatically.

After all, just look at this graph showing Louisiana’s GDP since 2007. Pretty good, right? Outside of a few hiccups, the line is going up since 2009.  As measured, the GDP of Louisiana increased from $206 billion in 2007 to $235 billion in 2017 (the last year we have full measurements for).

But, GDP numbers alone don’t tell the whole story. In fact, it leaves out an important variable-inflation. You know how your rent often increases despite nothing changing about your apartment? One reason this happens is due to inflation, otherwise known as money slightly losing value over time. While inflation might not be a big deal from one year to the next, it can have big effects over a decade, particularly when you are measuring billions of dollars.

The Bureau of Economic Analysis actually has a measure, which is able to take inflation into account when measuring the GDP of Louisiana.  The red line shows the inflation adjusted GDP of the state, while the non-adjusted line is in blue. This red line tells a much more accurate, and a lot less flattering, picture of the Louisiana economy.

As you can see, the value of the economic activity in Louisiana has actually been declining since 2010.  In 2010, the real GDP of Louisiana was $247 billion dollars. By the start of 2017, it had declined to $226 billion.

Recent economic data doesn’t do much to change this story. The unadjusted GDP in January 2017 was $236 billion. The most recent estimate from the Bureau of Economic Analysis was $252 billion, hardly the kind of growth needed to offset this decline.

But, why do these numbers matter?

Simply put, GDP is one way to get an overall picture of a state’s economy. If a state’s GDP is growing (accounting for inflation) things are generally looking pretty good. If it is stagnating or, even worse, shrinking, then you better look out.

Although GDP may not tell you everything about how a state and it’s people are doing, but GDP does provides a pretty solid approximation.

For example, Texas has had continuous real GDP growth since 2009. Louisiana, as we can see from the graph above, has failed to match the Lone Star State.

If Louisiana wants to see the same type of prosperity as its neighbor, it will need enact transformational reform, not merely chip away at the edges. This means tax reform, legal reform, and budget reform to get the Louisiana economy growing and provide more opportunities for the people living in the Pelican State. Don’t believe the politicians when they say that the status quo is working in Louisiana.

To learn more about ways to break the status quo, check out the Pelican Institute’s “A Jobs and Opportunity Agenda for Louisiana.”

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