Using Robert Gordon's method

Since last we spoke, I figured out how to use the SLOPE() and INTERCEPT() functions in Excel. Better late than never, huh?

I want to use Robert Gordon's method of evaluating economic conditions, the method we looked at yesterday. I want to pick time periods that interest me this time, and compare economic growth in those periods his way: for "quarters with identical unemployment rates".

I'm not doing it by throwing away all the data where there is no identical unemployment rate in both time periods. The way I'm doing it is by putting linear trend lines on scatterplots, and compare the trends. Like I did yesterday. It's the method that makes sense to me. I don't know how Robert Gordon did it. But I figure he must have done it the same way, as it is the only way to do it that I thought of. :)

Anyway, now I can calculate the slope and intercept values. I don't have to make the graph and add the trend line and copy the values from the trend line equation. That'll save a lot of work.


Since we crawled out of the last recession, for the longest time people were talking about how economic growth was so much slower than before.

• Julian Brookes in Rolling Stone, 2012: "Four years after the start of the Great Recession, nobody would mistake U.S. economy for a thrumming engine of growth, prosperity, and human flourishing."
• Chris Matthews in Fortune, 2014: "GDP growth has been tepid since 2009 (just 2.1% per year, below the post-war average and far below the average for previous recoveries)..."
• James Hamilton at EconBrowser, 2017: "The Bureau of Economic Analysis announced yesterday that U.S. real GDP grew at a 1.9% annual rate in the fourth quarter, well below the historical average of 3.1% per year, but close to the 2.1% average since the recovery from the Great Recession began in 2009:Q3."

Now, somehow, slow growth has become "normal". I think it's a dangerous way of thinking, to lie to ourselves like that. Hey, I don't want to dwell on how bad things are. I just want to understand the economy. So I think we have to accept the facts for what they are.

Does this mean we have  to accept slow growth as normal? No, because that's a prediction. Predictions are not facts. The fact is that the economy has been slower since 2009 than it was before.


Now, about that "before" time, and the growth then: "It´s more or less recognized that US RGDP is trend stationary," Marcus Nunes told me, "with real growth averaging about 3.3% from the early 50s to 2007."

At Trading Economics I read that "GDP Growth Rate in the United States averaged 3.21 percent from 1947 until 2018". I know they want to simplify and have just one number, and that can be useful. But it's not useful if you want to see how growth trends have changed.

Marcus's method is better. He figures an average only thru 2007. There is data left over, so we can figure an average for the more recent years. Then we can compare the two averages and see how growth trends have changed.

Trading Economics figures the average from a 1947 start. That's what I would do. It uses all of the commonly available quarterly data. Marcus figures the average from 1952 "to avoid the post war adjustment". That makes sense, too.

What doesn't make sense to me is to lump all the years together and get one average value, if there was a change somewhere in the middle. Scott Sumner says "growth in US living standards slowed after 1973". Somewhere in the middle.

Ross Perot showed the same:

Graph #1 Source: Ross Perot, United We Stand
(from when Perot was running for President in 1992)

So maybe we want to look at economic growth from 1947 to 1973, and from 1973 to 2007, and since 2007. Three numbers. Three growth trends. Then we can look at all three, and compare them. That's the kind of thing that makes sense to me.

So I made a graph like the last one I did yesterday, using Robert Gordon's method, but showing the three growth trends:

Graph #2: Progressive Decline in Trend Growth
Unemployment on the X Axis. RGDP Growth on the Y Axis.

Forget the thin, jiggy lines. Forget all those dots. Focus on the three thick trend lines. The highest one, the blue one, is for the years 1948 thru 1973. (1947 got lost somewhere.)

The red line is lower. The economic growth is lower. This line shows the trend for the years 1973 thru 2007.

The green line is lower yet. Economic growth is lower yet. This line shows the trend for 2007 thru 2017.

The average growth rate of the 1948-1973 line is 4.1%. The average for the 1973-2007 line is 3.1%. The average for 2007-2017 is 1.5%.

Graph #3: Average Growth Rate by Period

Graph #4: Average Unemployment Rate by Period