As we await (probably in vain) the resumption of robust economic growth, let us see what we can learn from the record since World War II (from 1947, to be precise). The Bureau of Economic Analysis (BEA) provides in spreadsheet form (here) quarterly and annual estimates of current- and constant-dollar (year 2005) GDP from 1947 to the present. BEA’s numbers yield several insights about the course of economic growth in the U.S.
I begin with this graph:
The exponential trend line indicates a constant-dollar (real) growth rate for the entire period of 0.81 percent quarterly, or 3.3 percent annually. The actual beginning-to-end annual growth rate is 3.2 percent.
The red bands parallel to the trend line delineate the 99.7% (3-sigma) confidence interval around the trend. GDP has been running at the lower edge of the confidence interval since the first quarter of 2009, that is, since the ascendancy of Barack Obama.
The vertical gray bars represent recessions, which do not correspond precisely to the periods defined as such by the National Bureau of Economic Research (NBER). I define a recession as:
- two or more consecutive quarters in which real GDP (annualized) is below real GDP (annualized) for an earlier quarter, during which
- the annual (year-over-year) change in real GDP is negative, in at least one quarter.
Annualized real GDP in the second quarter of 1953 was $2,366.2 billion (i.e., about $2.4 trillion in year 2005 dollars). Annualized GDP for the next five quarters: $2,358.1, $2,314.6, $2,303.5, $2,306.4, and $2,332.4 billion, respectively. The U.S. was still in recession (by my definition) even as GDP began to rise from $2,303.5 billion because GDP remained below $2,366.2 billion. The recession (i.e., drop in output) did not end until the fourth quarter of 1954, when annualized GDP reached $2,379.1 billion, thus surpassing the value for the second quarter of 1953. Moreover, the year-over-year change in GDP was negative in the first three quarters of the recession.
Unlike the NBER, I do not locate a recession in 2001. Real GDP, measured quarterly, dropped in the first and third quarters of 2001, but each decline lasted only a quarter. But, whereas the NBER places the Great Recession from December 2007 to June 2009, I date it from the first quarter of 2008 through the third quarter of 2011 (at least).
My method of identifying a recession is more objective and consistent than the NBER’s method, which one economist describes as “The NBER will know it when it sees it.” Moreover, unlike the NBER, I would not presume to pinpoint the first and last months of a recession, given the volatility of GDP estimates:
This graph suggests three things: (1) the uncertainty of quarterly estimates, (2) a declining rate of growth since 1947, and (3) some degree of periodicity in economic growth.
The periodicity, though irregular, can be seen more clearly in the following graph, where the vertical gray bars indicate quarters in which growth is below the declining trend line shown in the preceding graph.
The two preceding graphs lead to two observations:
- Time is not on our side; as long as government continues to grow, the economy will slide deeper into stagnation.
- Economic growth is unavoidably episodic, though government action (as in “stimulus”) can exacerbate recessions and hinder growth.
The following statistics underscore the first point:
|Inter-recessionary period||Annual growth rate|
|1947q4 – 1948q4||4.6%|
|1950q1 – 1953q2||7.5%|
|1954q4 – 1957q3||3.9%|
|1958q4 – 1960q1||3.7%|
|1961q2 – 1969q3||5.1%|
|1970q3 – 1973q4||4.4%|
|1975q4 – 1980q1||4.2%|
|1981q1 – 1981q3||3.3%|
|1983q2 – 1990q3||4.2%|
|1991q4 – 2007q4||3.1%|
To put a point on it, here are the rates of growth during the three longest periods of above-trend growth since World War II:
- 1963q1 – 1966q1 — 6.6%
- 1983q1 – 1986q1 — 5.1%
- 1995q3 – 1999q4 — 4.5%
It is hard to deny the almost-constant deceleration of growth in the post-war era — especially the sharper deceleration after 1970 — a deceleration that is embedded in the longer downward trend that began in the early 1900s.
In this connection, I note that the “Clinton boom“ — 3.4 percent real growth from 1993 to 2001 — was nothing to write home about, being mainly the product of Clinton’s self-promotion and the average citizen’s ahistorical (if not anti-historical) perspective. The boomlet of the 1990s, whatever its causes, was less impressive than several earlier post-war expansions. In fact, the overall rate of growth from the first quarter of 1947 to the first quarter of 1993 — recessions and all — was 3.4 percent.
What about the lingering Great Recession? It lingers mainly because it has been used — first by Bush, then by Obama — as an excuse for eve more disastrous expansions of the cost and reach of government.
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The Burden of Government