Inspired by some remarks by Arnold Kling and bolstered by my experience that human beings are better at perceiving a change in speed than they are speed I began noodling around and produced the graph above which illustrates the changes in the real GDP growth rate as measured from a fixed trend. Essentially, my guess was that people aren’t particularly good at perceiving the level of economic activity but they’re probably better at perceiving the change in economic activity over time.
Here’s the method I used for producing it. First, I downloaded the real GDP figures from 1948 to present from the St. Louis Federal Reserve’s FRED database. Then I calculated the year on year change as a percentage. Then I calculated the difference between that percentage and an arbitrarily selected trend. The trend I picked was the average GDP growth rate for the period (3.25%). If I had picked a different trend for calculating my differences, it would have made on difference in the general shape of the graph, only in the height of the peaks and depth of the troughs. Then I graphed the result.
The graph illustrates a clear trend: down. Obviously, that’s not good news.
You can see why those who spoke and wrote of a Great Moderation starting in the 1980s and continuing through the middle of the Aughts thought they were onto something. Maybe they were but the case is a bit weaker than it used to be. Rather than a Great Moderation in which, while the peaks are lower, the troughs are shallower, too, we may be seeing a general slowing of the rate of economic growth over a considerable period of time. The slowing has proceeded under Republican presidents and Democratic presidents, with Democratic control of the Congress and Republican control, and various permutations of the foregoing.
The time and persistence suggests, at least to me, that changing the trend will be very difficult, if not impossible to correct. A United States of persistent slow or no growth will be very different than the one I grew up in.