Financial Market Commentary

The last 4 years have been characterized by a consistent phenomenon among economic forecasters: each year began with forecasts of strong consensus growth ranging from 3.0-4.0%. As each year 2010-2013 unfolded, however, these forecasts were gradually ratcheted down until the final, disappointingly-low revised number was quietly revealed. Despite all the go-go forecasts, 2013’s final growth rate settled down to a lackluster 1.9% — the average since 2000. The chart below shows the annualized growth rate of real GDP (trailing 4 quarters) since 1948.

The 30-year trend of slowing growth is evident in the graph. Average growth has fallen every decade since 1981. Since 2000, Real GDP growth has averaged only 1.9% per year. Despite reduced tax rates, staggering budget deficits, artificially low interest rates and multi-trillion dollar stimulus programs, this is all the growth the US economy has been able to muster.

Until economists set aside their “magical thinking” and start discussing the economy in which we’re operating, rather than the economy they wish we had, we’ll continue overdosing on the wrong medicine. To read more on how our collective thinking can become so highly focused on the wrong issues, refer to my 2009 article The Dogma Days of Summer.