By Brendan Loy
One is the “real” monthly employment picture since 2009, subtracting out the 150,000 jobs that must be added per month just to keep up with population growth:
The other requires a bit more explanation. Nate Silver explains:
The rate of growth [in the U.S. economy] has in fact been quite steady over the long run: since 1877, the annual rate of G.D.P. growth has averaged about 3.5 percent after inflation. … I’ve plotted how far ahead or below of the long-term trend that the economy is at any given time. …
Here, you can really see the effects of the Great Depression. In early 1933, G.D.P. was about 40 percent below what it “should” have been based on long-term growth rates. But the economy recovered at a rapid clip over the course of the next decade. In fact, G.D.P. temporarily overshot, exceeding the long-term trend during World War II as America employed all the industry and labor that it could get its hands on to help with the war effort.
By this measure, most post-World War II recessions are barely detectable. They look more like reversions to the mean after years of above-average growth.
The Great Recession, however, is highly visible. G.D.P. had already been a couple of percentage points below the long-term trend before it began, as the recovery from the 2001-2 recession was not particularly robust. But things got much worse in a hurry.
Looked at this way, in fact, not only is the worst not yet over — the situation is still deteriorating. Every quarter that the economy grows at a rate below 3.5 percent, it loses ground relative to the long-term trend. Although the economy grew at a 3.8 annual percent rate from fall 2009 through summer 2010, over the past year growth has averaged just 1.6 percent, putting us farther behind.
Right now, gross domestic product is about $13.3 trillion dollars, adjusted for inflation — when it “should” be $15.7 trillion based on the long-term trend. That puts us more than 15 percent below what we might think of as full output, by far the worst number since the Great Depression.
If the economy were to enter another recession and shrink by 1 percent over the course of the next year, we would wind up 19 percent behind the long-term trend. But even if it were to grow at 2 percent, we would still be 17 percent behind.
What we need, instead, is above-average growth — in fact, quite a lot of it. Even if the economy were to begin growing at a 5 percent annual rate, it would take until 2018 for it to catch up to the long-term trend.
Anyone think that’s gonna happen?
Realistically, we’re looking at that ugly red dip extending well into the 2020s. At some point, doesn’t such an extended period of economic difficulty start to approach a functional definition of “depression”? Or at least a “lost decade” or two?