The $2.3 Trillion Gap

Here’s an unusual chart, but I think it explains a lot. This is real GDP divided by a trendline growing at 3.1%. So when the line is rising, the economy is growing faster than 3.1%. Conversely, when the line is dropping, the economy is growing by less than 3.1%.

For a 40-year stretch, from 1966 to 2006, the economy grew at a 3.1% annualized pace and it didn’t stray too far from that trend. The 1981-82 recession was severe, but the Reagan Recovery brought us back into trend.

The Great Recession, however, is a dramatic departure from the 40-year trend. That’s the key point I think the chart highlights. In the last six years, the economy has exceeded 3.1% growth in just four quarters. If the economy had kept pace with the 3.1% trend, it would be $2.3 trillion larger today in nominal terms.

Posted by on May 31st, 2012 at 11:06 am

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