Another look at US economic decline. I started with annual FRED data on Real GDP growth, inspected it, and added two trend lines -- one before the economic disaster of 2008-09 and one after:
The
black line shows Real GDP, annual rate of growth. I omit the years
before 1950, eliminating data from the Depression and World War Two.
The red trend line is based on the data for 1950-2000 and is displayed for the years 1950-2009.
The blue trend line is based on the data for 2010-2019 and is displayed for 2008-2023.
The
1950-2007 trend is visually indistinguishable from the 1950-2000 trend
so I have excluded the years 2001-2007 from the trend calculation.
The
2010-2023 trend, excluding 2020 and 2021, is to my eye
indistinguishable from the 2010-2019 trend as far back as the mid-1990s,
so I have omitted the years after 2019 from the calculation.
The transition from down-trend to up-trend seems to occur during the Financial Crisis and Great Recession years, 2008-09.
The
source data values are annual percentage rates. The trend lines are
based on annual percentages. I read the trend values as percentage
values.
The red trend runs from 4.326772247 (4.3%) in 1950 to
2.801315234 (2.8%) in 2009. The difference, spread over 59 increments,
comes to a 0.026 percentage point trend loss per year or 0.26 per
decade.
The blue trend runs from 2.02969697 (2.0%) in 2008 to
2.884242424 (2.9%) in 2023. The difference, spread over 15 increments,
comes to a 0.057 percentage point trend gain per year or 0.57 per
decade. The uptrend, so far, is rising twice as fast as the downtrend
was falling. If it hadn't started from such a low level -- and if we didn't have the covid interruption -- the improvement would be obvious.
Assuming that the transition occurred in 2008-09, we can
say that during the one year transition, trend growth fell by 0.7405
(0.74%) or, for comparison, just over 7.4% at the per-decade rate. That
one-year trend-transition shock is equal to approximately 28.5 years of
the 1950-2000 trend decline.
That's an interesting statistic, I think.
This is the first time
I looked at the decline of GDP growth and noticed a trend of increase
in the years since the financial crisis. So the news is not all bad. But
in case you have forgotten how bad our economy was in 2008-09 and
how long it took to show improvement, let me refresh your memory.
On August 6, 2016 Neil Irwin wrote: "The underlying reality of low growth will haunt whoever wins the White House in November..."
It was not until a couple of years later that the blue up-trend economy had at last improved enough that people were noticing:
Those
old headlines make it sound like Trump performed an economic miracle.
He did not, as the blue trend line on the graph clearly shows. Economic growth was definitely coming back by 2013: compare the low that year to the low of 2011. But the financial crisis
was so severe that it took a decade for the economy to get back
to halfway decent. And now we have Mister Trump taking credit for that improvement. It's not the lies that bother me. It's his flawed understanding of the economy.
CNBC tried to explain why the economy improved, but
they had no clue. Financial costs were down, that was really why we
started to see vigor. But when the economy grows, debt grows faster,
financial costs rise, and vigor fades.
If policymakers were wise, they would stop creating policy to encourage the use of credit -- policy that drives debt upward at a rapid pace -- and start creating policy to accelerate the repayment of private-sector debt.
Here's why the economy was so good in the latter 1990s. Until covid interrupted the progress, the same was happening in the years after the 2008-09 financial crisis and recession, but more slowly because debt was so much higher.
In 2015-2016 I predicted the return of economic vigor. Here's a page of notes and quotes.
