The more I looked at this graph from Marc Nunes, plotting nominal spending and output growth from 1800 to 2011 the more questions I had. Mr. Nunes notes:
Note that since the 1980s, and increasingly, nominal and real growth have become more tightly knit.
I wish there were a little more detail. I’d particularly like to know how the figures were derived.
I interpret his comment to imply that the change in nominal GDP is effecting the change in real GDP. Can you determine that from the graph alone? Why isn’t it the other way around?
I think a perfectly reasonable interpretation of the graph is that over time the Federal Reserve has become increasingly skilled at doing what it perceives its job to be. The Federal Reserve was established in 1913, coincidentally just shortly prior to the largest discrepancy between NGCP and RGDP over the period. After a few oscillations (notably, the Great Depression and World War II) there’s the Great Inflation followed, starting about 30 years ago, by the Great Moderation.
Has the old order really failed? That may be the case but I don’t see how you can support that conclusion from that graph.