Economic Puzzle

Here’s a puzzle I’ll throw open to the house. I’d welcome any feedback you might have.
The U.S. economy has grown at a remarkably stable rate for the past several decades. You wouldn’t know it from our political rhetoric, but the economy grows by an average of about 3.1% a year after inflation (or 3.08% to be more exact). Sometime we do better, sometimes worse. But we always come back to that 3.08% trend line.
Remember, the nasty recession of 1981-82, and the Reagan Recovery of 1983-84. From beginning to end…yep, 3.08%. Summer, spring, fall and winter, we always go back to 3.08%.
Except for once. Call it a brief shining moment. In the early-to-mid 1960s, the economy vaulted dramatically upward, and started to revert to a new and higher mean. Why? What happened? And most importantly, can we do it again?
I like this kind of puzzle because it makes you focus on data series and how to analyze them properly.
My first guess would be that it was something like the Fed or perhaps spending on the war in Vietnam. But then, how come we didn’t revert back to the old mean when those went away? Could they have had a one-time up boost, with no downside? Doesn’t seem likely.
The question we have to ask is, what changed for good that could have given us a one-time permanent economic boost. The best answer I can think of is that it’s due to the end of segregation. While I certainly believe that socialist race relations are immoral, I’d be partial to believing that it’s economic retardant. But here, I can’t fully trust myself. I know the world doesn’t work the way I would prefer.
But still, it’s intuitively makes sense. Using state power to hold people back isn’t just evil, it’s got to be costly. Unfortunately, I don’t have the GDP data broken down by each state. My other concern is Zodiacing. Perhaps, I’m looking to see a pattern that just isn’t there.
Here’s the data so you can judge for yourself.
This is GDP from 1951 to 2001. The yellow is GDP. The black is the trend line. The trend line increases at the same rate before and after the 1963-1966 “gap up.”

Here are the two lines divided by each other:

Posted by Eddy Elfenbein on November 1st, 2006 at 1:14 pm

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