Vermont has lowest GDP in U.S.

The best summary statistic we have to describe a state or nation’s economy is gross domestic product, the total dollar value of all goods and services produced within its borders. Vermont’s GDP — $30.4 billion in 2015 — pales in comparison to the U.S. total of $17,800 billion. That’s usually referenced as $17.8 trillion, but it’s hard enough for me to conceptualize a billion dollars, much less a trillion, and comparing Vermont’s GDP to the nation is best done using the same units of measure. We could also say that Vermont’s GDP is $0.0304 trillion, but that’s even harder to conceptualize. At any rate, Vermont’s GDP is the smallest of any state in the nation, below even Wyoming, the only state with fewer people than Vermont. At the other end of the list, California leads the nation with a GDP of $2.5 trillion.

Vermont may have a small GDP, but it’s as big as some countries’ GDP. It’s about the same as Nicaragua or Chad — both of which have more people than Vermont. A lot more. Nicaragua has about 10 times Vermont’s population and Chad has nearly 20 times as many. Both are desperately poor countries and on a per person basis Nicaragua’s GDP is about $5,000 and Chad’s is half that. Nicaragua’s per capita GDP is about where the U.S. was in the late 19th century and Chad’s is where we were before the Civil War.

Today, Vermont’s per capita GDP is $43,500, many times the level of those two nations but about 15 percent less than the U.S.’s $50,000. It’s also a little higher than England or France, with both at $41,500. Making these kinds of comparison — with other states, nations, and over time — is one reason GDP is such a useful summary measure.

The U.S. Bureau of Economic Analysis just released its state-level GDP numbers and they show that Vermont’s GDP, adjusted for inflation, rose by a scant 0.2 percent in 2015. That’s well below the U.S. growth rate of 2.4 percent and is fourth lowest in the nation. Only West Virginia, Alaska and North Dakota grew more slowly than Vermont, and the economies of all three of those energy producing states were affected by rapidly declining energy prices in 2015. That certainly was not a cause for sluggish growth in Vermont.

Over the past five years Vermont’s GDP grew at an average rate of only 0.8 percent per year, the 11th slowest in the nation and a full percentage point below the nation. The only year in the last five when Vermont’s GDP grew by any appreciable amount was in 2014.

Over the past 10 years, which includes the Great Recession and its sluggish aftermath, there have been only two years when Vermont’s GDP grew significantly faster (or shrank significantly less) than the nation. Overall, Vermont’s economic growth experience during the past decade has not been very good.

That wasn’t the case in the late 1990s and early 2000s. In more than half of those years Vermont’s performance was above, and often well above, the national growth rate. And from 1988 to 1998 the state’s economy grew at an average rate of 3 percent, more than a full percentage point faster than our growth rate during the 2000s. That 1 percentage point difference is important when it’s compounded over many years. If Vermont’s economy had grown at 3 percent instead of its actual rate of 1.9 percent since 2000, the state’s economy would be one-quarter larger than it is today. Because of our sluggish growth, the average Vermonter has a lower income, the state has less tax revenues, and businesses, small and large, have earned less profits.

There is no magic elixir for faster GDP growth. My recipe starts with an understanding and acknowledgement of the benefits of economic growth. That mentality can then be baked into policy making and business decisions. Add some ingredients like a stable and predictable economic environment, a high quality infrastructure, a skilled, mobile and adaptable labor force and mix them together and you get an outcome that’s favorable for economic growth. You end up with an economy more like the U.S. than Chad or Nicaragua — or even England or France.

Art Woolf is associate professor of economics at the University of Vermont.