Skip to content

GDP Growth

Now what has been happening with growth? Over the long haul we can see:

  1. a declining trend
  2. lower volatility (variance, in statistical terms)
  3. longer spacing in between recessions (fewer negative numbers despite the lower average level)

This is a theme of Levinson's Extraordinary Time. But look and the graph and think about what has happened to volatility, can you identify a "Great Moderation"?

40 thoughts on “GDP Growth

  1. Jack Johnson

    Compared to the volatility in real GDP from 1950 to the early 1980s, there has been a Great Moderation ever since with the exception of the Great Recession in 2008. According to the "Moderately well understood" article from FRED, more proactive monetary policy is one possible cause of the moderation. This explanation parallels Levinson's claim that policy prescriptions could no longer save the economy after the Golden Age; reactionary policies aren't sufficient in preventing economic busts. Another of the article's suggestions that the shift in labor to less volatile sectors moderated GDP aligns with Levinson's evidence that export-reliant manufacturing companies (a volatile sector) were crushed by inflation in nations owing money to the United States because these debtor nations couldn't afford to import from the U.S. The replacement of manufacturing with service (a less-volatile sector in response to economic fluctuations) came with a technology revolution. This leads to the article's third claim that technology has made inventory and demand monitoring more efficient and output more consistent. Hopefully these arguments explain the Great Moderation more accurately than merely good fortune.

  2. perelk20

    As we look towards the back half of the graph, volatility has clearly decreased over time. It is from here that we define our moderation. Our overall Growth Domestic Product decreases from both a positive and negative standpoint. The highs and lows from the mid 1980s' on are lower than anything we see on both sides of the dividing line previous to that. If we analyze this in terms of inputs and outputs, private consumption, government spending, investments, and exports are all down leading to what could be categorized as "a great moderation."

    1. lentza20

      Going off of what Kyle said, we can looks at the average lines on the graphs to see how they are leveling out over time. Given the information on the graph as well as what we know about Gross Domestic Product, we can determine that the market is trending towards equilibrium with the percent change getting closer and closer to zero year after year. This raises the question of whether the market will ever achieve a consistent growth/decline rate? Or will we perpetually be fluctuating in growth rates every year?

    2. Mac

      Going off what Kyle said, I believe our economy has strengthened to a point where it is more resilient to high inflation rates, unemployment rates, and other factors that affect it. Early on in the 1950's, it is very positive volatile due to the boom after WWII. Today, our economy is already so rooted in a solid foundation that it adapts to various changes in the economy and country. However, there will still be recessions like the one in 2005 and so forth. Overall, the U.S. economy has evolved into a well oiled machined that can take hits without falling into a depression. Less variance in the real GDP suggests that the economy is evening out on net benefits and net costs. This makes less winners/losers and a more evened out economic growth.

      1. the prof

        Then why do so many look back on the 1950s and 1960s as a golden era? Cf. An Extraordinary Time. Less variance is good, all else being equal. But all else has not been equal.

  3. williamse19

    It is interesting to think about what may have caused this change in volatility. From the framework of consumption, the graph may be reacting to changes in the types of goods and services we buy. Towards the beginning of the graph, we are consuming on a large part mostly nondurables while as GDP moves right we are spending less on nondurables and more on services. Meanwhile, durable goods are generally unchanged. Consumption of durable goods is very changeable in reaction to recessions. It is easier to eek out a few more years in a shabby house than buy a new one in tight times. As recessions are less and less common as we see working towards the right of the graph, volatility goes down. This could be a function of fewer recessions as there is not as much change in consumption of durable goods.

    1. the prof

      Structural change of the sort you note could be important; I've seen a couple papers on this, but don't recall what they found. Follow up on this idea???

  4. yuy20

    I would agree with Emily that the continuing moderation of GDP after the 1980s has definitely been impacted by changes in consumption. Even more than changes in durables vs. nondurables is the change in the production landscape. We do have less manufacturing which can contribute to volatility, and companies that still produce have benefited from technological advances to produce efficiently and save resources on possibly producing too much. Globalization may have also helped create this moderation by increasing amounts of exports through international trade.

  5. johnsonj20

    I agree that the shift of labor to less volatile sectors (specifically from manufacturing to service) has contributed to the moderation of real GDP. Levinson provided evidence that, in the early 1980s, export-reliant manufacturing companies (a volatile sector in response to economic fluctuations) were crushed by inflation in nations owing money to the United States because these debtor nations couldn't afford to import from the U.S. This labor shift argument is also made in the "Moderately well understood" article from FRED, which mentions more proactive monetary policy as another possible cause of the moderation of GDP. Better monetary policy should theoretically stabilize our currency and thereby lead to more consistent output. The article also supports the technology claim by arguing that the technological boom has enhanced inventory and demand tracking, thus moderating output. Hopefully these arguments more accurately explain the moderation of GDP since the early 1980s than merely good fortune in the form of fewer recessions.

  6. Julia Moody

    Levinson argues that the period between the 1950's and the 1970's was a truly unique time in terms of U.S. economic growth, and that our country will never return to that economic state again. Looking at the FRED graph, we can see that real GDP was extremely volatile during that period and dropped to its lowest point since before 1950 during that time. Since then, read GDP has declined over time but also has become increasingly less volatile. Since GDP is a measure of economic success, we can see that although we might not be experiencing the fantastic growth of the "Extraordinary Time" Levinson writes about, but we are experiencing a period of greater economic stability than we have ever known before.

  7. motturt20

    The lessened fluctuations in business cycles is apparent from 1980 until the early 2000's and constitute a clear moderation of growth. According to the graph, although the average above zero percent growth level has in fact decreased, the levels to which we drop when a recession occurs have not changed evidently at all. There are six recessions on the graph that had growth levels less than negative five percent, and the second most dramatic negative growth present in those recessions occurred most recently. A "great moderation," taken literally, would suggest average highs and average lows to trend closer to zero, whereas what we are seeing are decreased high points but unchanged low points.

  8. laniere20

    I think that the "great moderation" can be identified as when the lines on the graph become less volatile. In this particular graph, this happens as time goes on. To me it seems as though less volatility indicates a more stable economy, but on the flip side as volatile decreases so does the general trend of the GDP graph. I am curious what causes the extreme spikes upward in this graph. Additionally, it surprised me that GDP is on a downward trend. It seems that these days people are more than eager to participate in the economy, especially in terms of consumption and services.

  9. mcconnellm20

    It appears that over time the graph becomes less volatile. Up until the 1980s, the real GDP was very volatile with many sharp ups and downs. After the 1980s, we begin to see a less volatile trend. This is where you can begin to find moderation. In more recent years, after 2010, the real GDP has become even less volatile, and this is where we can find the "Great Moderation." This "Great Moderation" indicates that there is becoming a more moderate growth; there are no longer sharp increases in growth followed by sharp decreases in growth.

  10. Ellie Bradach

    The graph shows that GDP has become less volatile over time, especially in the past 7 years. This drop in volatility can be called a "great moderation" because instead of GDP being defined by intense highs and lows, GDP is more moderate, more balanced and temperate. It is interesting to think about what could have caused GDP to be less volatile and for that matter lower than it was earlier in the century. Maybe because of the increase of sustainable jobs and resources, growth in population, or a rise in international trade and economic involvement.

  11. liur20

    From my perspective, the major factor that contributed to a lower volatility in GDP growth rate and a smoother trend is due to the decreasing manufacturing jobs in the U.S.. Whenever there is an economic recession, or even the an economic turbulence, the sector that is influenced the most is the manufacturing sector. We could see high levels of volatility in the U.S. GDP growth rate coming out of world war 2, this is because of all the manufacturing jobs that are opening and closing in the U.S.. Deriving from the graph of manufacturing jobs from BLS, we could see a direct correlation between the amount of manufacturing jobs and the volatility level. The high volatility of GDP growth ended around 1980s and this is the same period of time we see the start of the declining of manufacturing jobs. The declining trend of manufacturing jobs is what caused the GDP growth chart to exhibits a lower level of volatility level.

    1. yuy20

      As we have fewer and fewer manufacturing jobs, would you say we'll see less volatility or recessions in the future?

  12. murrayc20

    According to the graph, the "great moderation" signals the time period when the red trend line displays the decrease in volatility. The more recent times are called the great moderation because of the consistencies the graph shows. Prior to 1982, there were extremely high real GDPs and extremely low GDPs. There was also a higher volatility. More recent times may have a lower average real GDP, but there are far less years where GDP is negative (compared to the front half of the graph). Our lower volatility is probably due to the US tendency to exchange services and to import, and not so much to engage in heavy industrialization. I am curious to know what caused the comparison between the great fluctuation in the first half of the century compared to the moderation in the second half.

  13. Chris Vogel

    After the year 1983, when the economic boom came to an end, we see that the percentage change of GDP is less volatile than it was before this. Aside from the great recession in 2008, partially caused from the housing crisis, the graph displays lessened peaks and troughs. This "Great Moderation" arises after the recession ending in 1983 due to the increased understanding of macroeconomies. The "extraordinary" time period preceding this recession, displayed fundamental trends in economic growth that was not previously apparent. Therefore, the policies that implemented from 1983 until present day were geared towards moderating small and sustainable economic growth. This trend can also be understood with the change in labor type, less manufacturing jobs, which correlate with consumption, to more steady jobs.

  14. wilkinsonw20

    Over time, despite the general decrease in real GDP, we observe a change in volatility in the graph around 1985. This change is most likely due to an increased knowledge base of economics, changes in the structure of the economy, and simply good fortune. The 1980's were a time of rapid economic change as computers were improved, trade became more open, and deregulation occurred. All of these reasons and more contributed to a more stable economy that was less volatile than the years prior.

  15. hermana20

    From 1947, when the graph begins, to roughly the end of 1983, Real GDP fluctuated a lot over the course of each year (from quarter to quarter). Real GDP was highly volatile during this time period, going from 1.4 to 16.5 percent change from the previous period in Real GDP over the course of 1 quarter (Quarter 1 of 1978 to Quarter 2 of 1978). Starting in 1984, Real GDP became less volatile, producing much less "noise" and fluctuating less over the course of each quarter, and the following years. The one major exception is the financial crisis of 2008-2009 where Real GDP did significantly drop. Looking at a Volatility of GDP's Components Graph on FRED, one can see that Real Personal Consumption Expenditures and Real Government Consumption Expenditures are not very volatile components of GDP at all. Rather, Real Gross Private Domestic Investment and Imports and Exports are the more volatile components of Real GDP. Real Gross Private Domestic Investment plummeted during the 2008 recession while Consumption and Government Purchases of Goods/Services remained relatively flat. Exports and Imports can be a volatile component of GDP with the changing of Presidential administrations, especially when certain Presidents seem to favor the notion of re-working deals, and putting up barriers to international trade.

  16. gutierrezcuadras20

    Looking at the graph, you can see a clear trend in GDP growth becoming more and more stagnant. The entire left side of the graph before reaching the1980s clearly shows these rapid changes in GDP, these numerous boom and bust periods of growth. However, as time continues, these numerous boom and bust periods occur less frequently indicating Levinson's argument of a "Great Moderation," a period of neither high economic growth, nor low economic growth. I imagine that with less susceptibility to sharp changes (especially less frequent recessions), GDP growth at this moderate rate must mean overall, economic stabilization.

  17. Lukas Campbell

    After around 1980, the variance in GDP growth rates starts to lower, meaning the deviations from the "mean" growth rate become less extreme as time goes on. If you focus the graph to only a few years (around 2-3), you can also notice that as you compare earlier 2-3 year periods to their following periods, you will notice that each subsequent period has less up/down changes in growth rate. This signifies a decrease in volatility and thus a shift toward moderation, especially in recent years. The graph supports the notion that we are trending toward a period of moderation.

  18. Kaitlyn Fitzsimmons

    The "Great Moderation" appears to be the time period post mid 1980s until the financial crisis of 2008 disruptied this positive trend of economic stability, increasing volatility once again. In the 1970s, the economy experienced oil crisis which increased volatility. More control over energy crisis and lower inflation played a role in the “Great Moderation.” Despite a lower average GDP, longer spacing between recessions is good news for the health of the economy and well-being of the people.

  19. thaia19

    Around the mid 1980's, GDP became less volatile. Soon after the Extraordinary Time ended, the "Great Moderation" began. However, there was still a drop in 2008 when the Great Recession began.

  20. hartigank20

    Looking at the measure of real GDP, the volatility starts to decrease around the 1980s. Before the 1980s, there is large volatility, seen by the large up and downs on the graph. There are rapid increases in real GDP, followed by large decreases in GDP. After the 1980s, the changes in GDP become less prominent and the graph begins to look more like a straight line. This time is seen as the “great moderation” because of the stable activity in our economy. Our real GDP after the 1980s shows no large increases or decreases in GDP, except for the 2009 great recession.

  21. mizeo20

    It appears that after 1971 when the US went off the gold standard our GDP remained volatile for another ten years until around 1980 when volatility began to subside. As Mark Levinson describes, this period prior to 1980 was an "extraordinary time" and the economy was experiencing trends like it had never seen before. In this period we saw high inflation, going off the gold standard, and oil shortages. Then in 1980, there began a time of "great moderation." In my opinion, I believe this period of moderation came following the election of Ronald Reagan and the institution of his policies. The markets were better regulated by the Federal Reserve, and political turmoil ceased with the end of the Cold War.

  22. richardsonw20

    The graph shows less volatility starting just before the 1980's. This theme of stabilization begins after an 80 year period filled with global conflict. Two World Wars, the Korean war, and Vietnam had all occurred before 1980. The USA was constantly feeling the effects of being at war and I think that the volatility of the economy reflects this. As the graph shows, the US GDP drops significantly right around 1947/48 in the immediate wake of WWII. By 1951 GDP is back up at record setting highs. Around 1953 things are not looking good again after the Korean war. The period from 1960-1975 (Vietnam) shows less drastic, but much more frequent changes in GDP. The next big drop comes in 2008 right in the middle American involvement in the Middle East.

  23. litvaka20

    During the period that Levinson describes as an extraordinary time, there was significant volatility in regard to GDP, however, there was a trend of higher GDP than after this time. After the many recessions that occur up until the early 1980’s, there seems to be a period of significantly less volatility, which could be identified as the “Great Moderation” because there is increased stability in the economy. While average GDP may have been higher during the period dubbed the extraordinary time, the large number of recessions led to significant volatility in the economy. The slowing of recessions and possible changes in consumer spending, investment by firms, government spending on goods and services, and exports since the 1970’s, may explain some of the lessened volatility.

  24. Juliana Kerper

    I agree with a lot of what was said above. It does look like volatility is decreasing over time, i.e. the percent change of real GDP growth from previous years is getting closer to 0. It does seem as if there are decreased high points and unchanged low points the farther right you go on the graph. To me, it appears as if decreased volatility correlates with a decrease in real GDP growth. There also seems to be a positive correlation between volatility and manufacturing jobs. We know that Levinson talked about GDP growth slowing in the long run because of stabilization. Thus, we would currently be in a period of moderation. One interesting theory posited by Bernanke of the Federal Reserve is that our period of moderation is due to greater independence of central banks from political and financial influence, which has lead to stabilization. However, there's also the question of the late-2000s economic crisis which would indicate the end of the "Great Moderation". Thus, I think we should consider whether or not economic status is merely cyclical over time.

  25. andersons20

    "The Great Moderation" occurred during the late 1990's and early 2000's, a period of decreased GDP volatility as reflected in the graph. This period preceded one of the worst economic turmoils since WWII that the global economy has yet to recover from.

  26. Andrew Blair

    Looking back at the graph, the volatility has obviously declined over time. We are able to see our moderation from this decline. GDP decreases both positively and negatively. The inputs, outputs, government spending, private consumption, and investments can be analyzed are organized into what we know as a great moderation.

  27. gianakosa20

    The graph shows the decreased volatility of GDP over time since 1980, indicating the ignition of a more stable economy following the "extraordinary time" that Levinson writes about in his book. GDP consistently decreases throughout the time period that the graph represents.

    The graph also shows an interesting pattern. Whenever the graph becomes extremely volatile, a financial recession or crisis occurred. This seems to occur every 20-30 years: in 1958, 1980, and 2008. This begs the question, when will the next recession take place? Around 2028? Or will our financial situation deviate from the pattern that this graph presents and experience a recession/crisis sooner than this? Though the graph seems to show an economic pattern of stability, the economy is too unpredictable to give a definitive answer on when the next recession/crisis will happen.

  28. Nate Abercrombie

    The volatility in GDP is clearly decreasing over the period of time this graph displays. It's interesting to note that once the time of great booms and busts ended, we are now left in era of solely busts. The three most recent recessions were not followed by incredible growth beyond the point of recovery, unlike in the mid/late 20th century. The lack of strong rebounds is something that plays into and gives a reason for the overall declining GDP growth percentages. The "Great Moderation" theory appears to be extremely valid when analyzing charts that display large-scale trends, such as this one. This graph shows the trend of moderation and predictability becoming more prevalent around the beginning of the 1990s, supporting Levinson's theory from "An Extraordinary Time."

  29. the prof

    • Was there a Great Moderation? That term came into use just before the Great Recession. It's only just starting to reappear. If moderation comes at the cost of the occasional really awful recession, then maybe the old days of boom and bust are preferable.

    • What weight growth vs volatility? Poorer Americans seem to benefit more from the former than the latter.

    • Why the moderation? If it's structural, as several of you argued, then neither economists nor politicians can claim credit. If it's due to policy, then we need an answer to questions 1 and 2.

  30. Khang Truong

    What we're looking at is the economy slowly stabilizing, particularly after the 1980's when Levinson's described period of rapid growth began to give way to a period of less dramatic growth, but also less variance as well. The notable exception here is the Great Recession, where we see a spike in variance. Just for fun, we can also look at graphs of other nations making the transition to a post-industrial economy and see a similar shape.

    1. bashamc20

      I concur- we should look at other nations actively developing and compare how vastly different GDP growth is compared to developed nations. This is the basis for the shift to the new global characterization of economies as "developed" vs. "developing" rather than "first world,"second world," and "third world." Countries like Nauru, Ethiopia, Turkmenistan, Panama, and Ghana are perfect examples of this; in fact, their GDP growth rates have surpassed 10% over the last decade. Nauru, in fact, had a GDP growth of 36.5% in 2014; this is simply unfathomable in the U.S., and thus well represents the dichotomy between the developed and developing worlds.

      Data source: Global Finance Magazine

  31. smithg20

    This graph clearly show the economy moving towards a “great moderation” in present day. It is interesting to contrast this to Levinson’s idea of great economic growth throughout the 60’s and 70’s. While there was great growth, the nation’s GDP also seems to have been very volatile during this time. I think this distinction comes down to debate over whether immense and dramatic growth or moderate growth is better for the nation’s economy over time. While the growth during the 60’s and 70’s might have seemed beneficial in the short-term, many might believe that slow and moderate growth are better for a nation’s economic stability.

  32. Ruofan Shen

    Based on the graph, we can see a obvious reduction in volatility of fluctuations starting in the 1980s. According to FRED, during the 1980s, all the major economics variables such as real gross domestic product growth, industrial production, monthly payroll employment and the unemployment rate began to decline in volatility. In my opinion, these reduction shown in the graph are primarily due to greater independence of the central banks from political and financial influences which has allowed them to follow macroeconomic stabilization. These could be caused both by institutional and structural changes in both developed and developing countries. Also I think the boost in technology development and greater flexibility in working practices also contribute to this stability. And I also wondered what effects could the Great Moderation bring to the economics.

  33. grims20

    It is interesting to see that growth is decreasing, which is negative for economics and society and a whole, but volatility is also decreasing, which is more positive. This decrease of both growth and volatility is what led to "The Great Moderation", as discussed by Levinson. This decrease in both growth and volatility is most likely a result of the difference in variables between the post WWII "Golden Age" and the world today. These variables include factors such as an increase in consumption as a result of the baby boomers, and an increase in American technology exports as a result of the post-war rebuilding of factories with the newest technology. The decrease in both growth and volatility leads to a lower maximums and minimums in GDP, and therefore more moderation. It is also interesting to note that although high volatility is viewed to be overall negative, the "golden age" of economics had higher volatility than what we have in the world today.

Comments are closed.