Does This Ease Your Worries?: US GDP from 1870-2008

Last Updated May 27, 2011 1:14 PM EDT

As you can see from this picture, historically we've always recovered from recessions. Eventually. But as you can also see from the Great Depression, recovery has not always been immediate -- the source of Keynes famous "In the long-run we're all dead."

I am confident that we'll return to trend this time as well, the question is how long it will take us to get there. At this point -- with the worrisome signs in recent data -- it's not looking to be anywhere near as fast as we'd like (source):

Log GDP Click here for a larger, clearer picture
The graph only goes through 2008. Here's a picture of more recent data (note the dates Lucas uses at the top of the graph to date the recession):

Log GDP update Click here for a larger, clearer picture
Again, though we are beginning to grow at trend rate again and that's better than the free fall we were in, there is a lot of ground to make up. That requires a period of growth in excess of trend, and there's nothing to indicate that will happen anytime soon.

This looks about right to me (though I should note that past forecasts have been overly optimistic):

Frbsf-fore


And the recovery of employment is likely to be even slower.

So we will get back to trend. But it will be awhile before we get there.

Update: Please see the follow-up discussion here.

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